Employee well-being policies
When it comes to attracting, developing and retaining valuable talent, organizations commit considerable time and resources to strengthening relationships with their employees. By investing in these relationships, many organizations hope to improve employee well-being.
One way of doing so is by developing well-being policies such as contracts with strong retirement benefits programs, financial programs and stock ownership. “Studies have shown that in today’s competitive markets, employee well-being policies enable firms to build viable relationships with their employees,” says Lamia Chourou, Associate Professor at the Telfer School of Management at the University of Ottawa. “Such policies may also give companies a competitive edge and higher financial performance,” she adds.
Connection between debt maturity and employee well-being policies
While research has shown a strong link between a company’s investment in talent and higher financial performance, little is known about the impact of employee well-being policies on debt maturity decisions. Debt maturity decisions are the choices companies make between long-term and short-time debt financing. As companies make important choices regarding debt maturity, does their commitment to employee well-being policies lead these firms to make long-term or short-term debt decisions?
This is one of the questions motivating Chourou and an international group of researchers. The team examined the impact of employee well-being policies on the debt maturity of over 19,000 firms based in the United States from the 1990s to the mid-2010s. The researchers found that:
- The involvement of a firm in employee well-being policies has a strong impact on the firm’s debt maturity. More specifically, firms with higher commitment to strong employee relationships prefer long-term over short-term debt.
- When companies choose long-term over short-term debt, they have access to more available liquid assets. As a result, these companies can be freer to honour their commitment to employee well-being policies.
- There is a stronger link between employee well-being policies and a firm’s debt maturity in human capital-intensive industries such as telecommunications, high tech and health care services.
- This connection may be more prevalent in firms with low employee membership in labour unions.
The authors shared these key results in an article entitled “Does employee welfare affect corporate debt maturity?” published in the European Management Journal.
Policy and practice implications
Chourou’s collaborative study provides new evidence on the role of employment policies and practices and their impact on firms’ debt maturity. As she explains:
“Our results suggest that human capital strategies and corporate finance are inevitably intertwined, and indicate that nonfinancial stakeholders, such as employees, constitute an essential link between the two.”
The connection between debt maturity and employee well-being policies should not be ignored. This is particularly important because, as the study suggests, firms committed to employee well-being policies have an incentive to use long-term debt.
Lamia Chourou is an Associate Professor at the Univeristy of Ottawa's Telfer School of Management. She is also a CPA Ontario Fellow. Her research focuses on capital markets and in particular corporate disclosure, financial reporting quality and analysts’ forecasts.