Employee Relations and Credit Risk


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Industrial relations in an industry only incorporates cohesion between employees and employers, decision-making and capital investment.The hidden cost of poor industrial relations arises because poor management of the above can lead to revenue and unrest in an industry   



What is the hidden cost of poor industrial relations?

 

1-  Lost Management time and Productivity.
2 - Low employee engagement
3 - Unhealthy work culture / Stressful work environment
4 - High litigation cost
5 - Labour Turnover cost
6- The cost of Indiscipline
7 - Delay in developmental process/ low level of acceptance
8 - loss of confidentiality
9 - Unwanted third party involvements
10 - Employer Branding cost

Consistent with the theory that people management influences organizational performance and risk, I believe that employee relationships explain variation in credit risk.Its required to construct an aggregate measure of the quality of relationships with employees based on the firm's commitment to employment practices and policies, and document that those with relationships with employees stronger benefit cost of debt financing statistically and economically more higher credit ratings and risk.These results are robust to the inclusion of a full set of controls and other explanations. 

Human capital is now a critical competitive asset with a significant impact on organizational success. As a result, managers invest significant resources in attracting, developing, and retaining valuable human capital. The development of employee relations, which is represented in the employment rules and practices that organizations adopt, is central to these management efforts. 

Employee relations have an impact on bondholders due to their influence on corporate risk. Firms with solid and competitive employment procedures can improve their ability to create greater and more predictable cash flows while also preventing or mitigating the detrimental conduct of disgruntled workers. 

Poor employee relations, on the other hand, can limit organizations' access to human resources, cause important employees to leave, increase litigation and reputation risks, and boost transaction costs. The consequences of such employment-based hazards vary from unanticipated drains on a company's cash position to possibly lasting damage to its financial picture. Although it is sometimes thought that firm-specific losses may be diversified away, some researchers demonstrate that investors' capacity to properly diversify bond portfolios is restricted.

There is an increasing awareness that managers' relationships with many stakeholders, like as clients, employees, suppliers, regulators, and society at large, are critical to business value maximization (see, for example, Jensen and Meckling, 1976; Titman, 1984). Employees are particularly significant among these stakeholders since their human capital has become a critical competitive advantage in today's service-oriented firm (Cornell and Shapiro, 1987). 

Firms rely on their workers' talents and devotion to fulfill the global economy's increasing need for innovation, quality, speed, and flexibility. To use the staff as a competitive asset, managers must increasingly rely on the quality of their employee relations as a major factor of the decisions that employees make regarding their jobs.

Employee relations should be important to bondholders for various reasons. First, employees can influence firm-specific risks that bondholders face. When the quality of employee relations drives workers to take activities that reduce the firm's ability to generate cash flows or increase the volatility of these cash flows, bondholders are exposed to risk. This is typically the case when employment policies and procedures fail to meet employees' expectations, or when management goes so far as to breach their claims (e.g., discrimination, disinformation, wrongful termination). Dissatisfied employees might respond to poor management practices by limiting access to their human capital, quitting, or filing legal action against the company. 

Also employee strikes, boycotts, and litigation may harm a company's reputation in the community. As a result, employee interactions are an important component of the social dimension, and past study has found that strong employment practices and policies reduce firm-specific hazards. 



REFERENCES


Cornell, B. and Shapiro, A.C. (1987) “Corporate stakeholders and Corporate Finance,” Financial Management, 16(1), p. 5. Available at: https://doi.org/10.2307/3665543.

Jensen, M.C. and Meckling, W.H. (1976) “Theory of the firm: Managerial Behavior, agency costs and ownership structure,” Journal of Financial Economics, 3(4), pp. 305–360. Available at: https://doi.org/10.1016/0304-405x(76)90026-x.

Titman, S. (1984) “The effect of capital structure on a firm's liquidation decision,” Journal of Financial Economics, 13(1), pp. 137–151. Available at: https://doi.org/10.1016/0304-405x(84)90035-7.

What is the hidden cost of poor industrial relations? all discussions (list) (no date) CiteHR. Available at: https://www.citehr.com/630905-what-hidden-cost-poor-industrial-relations.html (Accessed: April 22, 2023).



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