IDEAS home Printed from https://ideas.repec.org/a/bla/irvfin/v20y2020i2p415-450.html
   My bibliography  Save this article

Do Countries Matter More in Determining the Relationship Between Employee Welfare and Financial Performance?

Author

Listed:
  • Kartick Gupta
  • Chandrasekhar Krishnamurti

Abstract

Extant literature suggests that employee‐friendly practices influence corporate decision‐making. Using a bargaining framework, we examine the role of country‐level determinants in influencing employee‐friendly practices and their impact on value creation. Utilizing a comprehensive sample of 25,483 firm‐year observations from 56 countries, we find that firms domiciled in countries with weak employment protection and regulations can potentially benefit by voluntarily undertaking employee‐friendly practices. Also, in countries with flexible labor market conditions, firm value is enhanced by undertaking employee‐friendly practices. Furthermore, the importance of employee‐friendly practices in value creation is observed strongly in countries that provide better infrastructure, productivity, and incentives.

Suggested Citation

  • Kartick Gupta & Chandrasekhar Krishnamurti, 2020. "Do Countries Matter More in Determining the Relationship Between Employee Welfare and Financial Performance?," International Review of Finance, International Review of Finance Ltd., vol. 20(2), pages 415-450, June.
    • Handle: RePEc:bla:irvfin:v:20:y:2020:i:2:p:415-450
    DOI: 10.1111/irfi.12231
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/irfi.12231
    Download Restriction: no
    File URL: https://libkey.io/10.1111/irfi.12231?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
    2. Henrik Cronqvist & Fredrik Heyman & Mattias Nilsson & Helena Svaleryd & Jonas Vlachos, 2009. "Do Entrenched Managers Pay Their Workers More?," Journal of Finance, American Finance Association, vol. 64(1), pages 309-339, February.
    3. Chatterji, Aaron & Durand, Rodolphe & Levine, David & Touboul, Samuel, 2014. "Do Ratings of Firms Converge? Implications for Strategy Research," Institute for Research on Labor and Employment, Working Paper Series qt21t0n6wg, Institute of Industrial Relations, UC Berkeley.
    4. Lang, Larry H P & Stulz, Rene M, 1994. "Tobin's q, Corporate Diversification, and Firm Performance," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1248-1280, December.
    5. Pattanaporn Chatjuthamard & Pornsit Jiraporn & Shenghui Tong & Manohar Singh, 2016. "Managerial Talent and Corporate Social Responsibility (CSR): How Do Talented Managers View Corporate Social Responsibility?," International Review of Finance, International Review of Finance Ltd., vol. 16(2), pages 265-276, June.
    6. Kleibergen, Frank & Paap, Richard, 2006. "Generalized reduced rank tests using the singular value decomposition," Journal of Econometrics, Elsevier, vol. 133(1), pages 97-126, July.
    7. Luigi Zingales, 2000. "In Search of New Foundations," Journal of Finance, American Finance Association, vol. 55(4), pages 1623-1653, August.
    8. Olubunmi Faleye & Emery Trahan, 2011. "Labor-Friendly Corporate Practices: Is What is Good for Employees Good for Shareholders?," Journal of Business Ethics, Springer, vol. 101(1), pages 1-27, June.
    9. John, Kose & Knyazeva, Anzhela & Knyazeva, Diana, 2015. "Employee rights and acquisitions," Journal of Financial Economics, Elsevier, vol. 118(1), pages 49-69.
    10. Durand , Rodolphe & Touboul , Samuel, 2014. "Do Ratings of Firms Converge? Implications for Managers, Investors and Strategy Researchers," HEC Research Papers Series 1076, HEC Paris.
    11. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer & Robert Vishny, 2002. "Investor Protection and Corporate Valuation," Journal of Finance, American Finance Association, vol. 57(3), pages 1147-1170, June.
    12. Doidge, Craig & Andrew Karolyi, G. & Stulz, Rene M., 2007. "Why do countries matter so much for corporate governance?," Journal of Financial Economics, Elsevier, vol. 86(1), pages 1-39, October.
    13. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    14. Todd A. Gormley & David A. Matsa, 2014. "Common Errors: How to (and Not to) Control for Unobserved Heterogeneity," The Review of Financial Studies, Society for Financial Studies, vol. 27(2), pages 617-661.
    15. Reena Aggarwal & Isil Erel & René Stulz & Rohan Williamson, 2010. "Differences in Governance Practices between U.S. and Foreign Firms: Measurement, Causes, and Consequences," The Review of Financial Studies, Society for Financial Studies, vol. 23(3), pages 3131-3169, March.
    16. Bae, Kee-Hong & Kang, Jun-Koo & Wang, Jin, 2011. "Employee treatment and firm leverage: A test of the stakeholder theory of capital structure," Journal of Financial Economics, Elsevier, vol. 100(1), pages 130-153, April.
    17. Cragg, John G. & Donald, Stephen G., 1993. "Testing Identifiability and Specification in Instrumental Variable Models," Econometric Theory, Cambridge University Press, vol. 9(2), pages 222-240, April.
    18. David A. Matsa, 2010. "Capital Structure as a Strategic Variable: Evidence from Collective Bargaining," Journal of Finance, American Finance Association, vol. 65(3), pages 1197-1232, June.
    19. Ozgur S. Ince & R. Burt Porter, 2006. "Individual Equity Return Data From Thomson Datastream: Handle With Care!," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 29(4), pages 463-479, December.
    20. Yermack, David, 1996. "Higher market valuation of companies with a small board of directors," Journal of Financial Economics, Elsevier, vol. 40(2), pages 185-211, February.
    21. Taylor, Frederick Winslow, 1911. "The Principles of Scientific Management," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number taylor1911.
    22. Edmans, Alex, 2011. "Does the stock market fully value intangibles? Employee satisfaction and equity prices," Journal of Financial Economics, Elsevier, vol. 101(3), pages 621-640, September.
    23. McConnell, John J. & Servaes, Henri, 1990. "Additional evidence on equity ownership and corporate value," Journal of Financial Economics, Elsevier, vol. 27(2), pages 595-612, October.
    24. Amir Barnea & Amir Rubin, 2010. "Corporate Social Responsibility as a Conflict Between Shareholders," Journal of Business Ethics, Springer, vol. 97(1), pages 71-86, November.
    25. Andrea L. Eisfeldt & Dimitris Papanikolaou, 2014. "The Value and Ownership of Intangible Capital," American Economic Review, American Economic Association, vol. 104(5), pages 189-194, May.
    26. Aaron K. Chatterji & Michael W. Toffel, 2010. "How firms respond to being rated," Strategic Management Journal, Wiley Blackwell, vol. 31(9), pages 917-945, September.
    27. Alex Edmans & Lucius Li & Chendi Zhang, 2014. "Employee Satisfaction, Labor Market Flexibility, and Stock Returns Around The World," NBER Working Papers 20300, National Bureau of Economic Research, Inc.
    28. G. Andrew Karolyi, 2016. "Home Bias, an Academic Puzzle," Review of Finance, European Finance Association, vol. 20(6), pages 2049-2078.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Qihang Xue & Huimin Wang & Caiquan Bai, 2023. "Local green finance policies and corporate ESG performance," International Review of Finance, International Review of Finance Ltd., vol. 23(4), pages 721-749, December.
    2. Charl de Villiers & Jing Jia & Zhongtian Li, 2022. "Corporate social responsibility: A review of empirical research using Thomson Reuters Asset4 data," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(4), pages 4523-4568, December.
    3. Saeed, Abubakr, 2021. "The impact of employee friendly practices on dividend payments: Evidence from emerging economies," Journal of Business Research, Elsevier, vol. 135(C), pages 592-605.
    4. Panicker, Vidya Sukumara & Georgiadou, Elena & Hodgkinson, Ian R., 2024. "Generous to a fault: Differential impact of CSR investments on financial gains in Indian market multinationals," Journal of International Management, Elsevier, vol. 30(3).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gupta, Kartick & Krishnamurti, Chandrasekhar, 2021. "Corporate social responsibility, competition, and firm value," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    2. Gupta, Kartick & Krishnamurti, Chandra, 2023. "Does employees' interest matter more than shareholders’ interest in determining cash management policy?," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 568-589.
    3. Chen, Jie & Leung, Woon Sau & Evans, Kevin P., 2016. "Are employee-friendly workplaces conducive to innovation?," Journal of Corporate Finance, Elsevier, vol. 40(C), pages 61-79.
    4. Boubaker, Sabri & Chourou, Lamia & Haddar, Marwa & Hamza, Taher, 2019. "Does employee welfare affect corporate debt maturity?," European Management Journal, Elsevier, vol. 37(5), pages 674-686.
    5. Banerjee, Rajabrata & Gupta, Kartick, 2019. "The effect of environmentally sustainable practices on firm R&D: International evidence," Economic Modelling, Elsevier, vol. 78(C), pages 262-274.
    6. Liang, H. & Renneboog, Luc & Vansteenkiste, Cara, 2017. "Corporate Employee-Engagement and Merger Outcomes," Other publications TiSEM ab3f7a1d-a202-48b7-9c75-1, Tilburg University, School of Economics and Management.
    7. Gupta, Kartick & Banerjee, Rajabrata & Onur, Ilke, 2017. "The effects of R&D and competition on firm value: International evidence," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 391-404.
    8. Cao, Zhangfan & Rees, William, 2020. "Do employee-friendly firms invest more efficiently? Evidence from labor investment efficiency," Journal of Corporate Finance, Elsevier, vol. 65(C).
    9. Banerjee, Rajabrata & Gupta, Kartick, 2017. "The effects of environmental sustainability and R&D on corporate risk-taking: International evidence," Energy Economics, Elsevier, vol. 65(C), pages 1-15.
    10. Ammann, Manuel & Oesch, David & Schmid, Markus M., 2011. "Corporate governance and firm value: International evidence," Journal of Empirical Finance, Elsevier, vol. 18(1), pages 36-55, January.
    11. Holland, Sara B., 2017. "Firm investment in human health capital," Journal of Corporate Finance, Elsevier, vol. 46(C), pages 374-390.
    12. Ferrell, Allen & Liang, Hao & Renneboog, Luc, 2016. "Socially responsible firms," Journal of Financial Economics, Elsevier, vol. 122(3), pages 585-606.
    13. Fauver, Larry & McDonald, Michael B. & Taboada, Alvaro G., 2018. "Does it pay to treat employees well? International evidence on the value of employee-friendly culture," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 84-108.
    14. Banerjee, Rajabrata & Gupta, Kartick & Krishnamurti, Chandrasekhar, 2022. "Does corrupt practice increase the implied cost of equity?," Journal of Corporate Finance, Elsevier, vol. 73(C).
    15. Alexandre Garel & Arthur Petit-Romec, 2021. "Engaging Employees for the Long Run: Long-Term Investors and Employee-Related CSR," Journal of Business Ethics, Springer, vol. 174(1), pages 35-63, November.
    16. Ferrell, Allen & Liang, Hao & Renneboog, Luc, 2016. "Socially responsible firms," Journal of Financial Economics, Elsevier, vol. 122(3), pages 585-606.
    17. Sun, Xuan Sean & Habib, Ahsan & Bhuiyan, Md. Borhan Uddin, 2020. "Workforce environment and audit fees: International evidence," Journal of Contemporary Accounting and Economics, Elsevier, vol. 16(1).
    18. Liang, Hao & Renneboog, Luc & Vansteenkiste, Cara, 2020. "Cross-border acquisitions and employment policies," Journal of Corporate Finance, Elsevier, vol. 62(C).
    19. Blake Rayfield & Omer Unsal, 2019. "Employee Disputes and Innovation Performance: Evidence from Pharmaceutical Industry," NFI Working Papers 2019-WP-01, Indiana State University, Scott College of Business, Networks Financial Institute.
    20. Allayannis, George & Lel, Ugur & Miller, Darius P., 2012. "The use of foreign currency derivatives, corporate governance, and firm value around the world," Journal of International Economics, Elsevier, vol. 87(1), pages 65-79.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:irvfin:v:20:y:2020:i:2:p:415-450. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=1369-412X .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.