The relationship between employee orientation, financial performance and leverage

Abstract

Purpose – The purpose of this study was to provide an empirical investigation into the relationship between employee orientation and both financial performance and leverage. Design/methodology/approach – The selected sample set consisted of German publicly listed and unlisted companies identified as a “Top Employer” by the Top Employers Institute for the period 2008-2010. The relationship between employee orientation and both financial performance and leverage was then examined for this sample set for the period 2007 and 2011, with the rating “Top Employer Germany” used as a proxy measure of employee orientation. Findings – The findings show a strong correlation with trade-off, traditional human relations and managerial opportunism theory. It is shown that investments in employee-orientated activities, such as career opportunities, and secondary benefits and work–life balance, lead to reductions in financial performance, which in turn leads to higher levels of employee orientation. Furthermore, no statistically significant relationship between the level of employee orientation and company leverage was found which is in disagreement with stakeholder capital structure theories which propose that there is a negative relationship, where highly leveraged companies tend to invest less in employee-orientated activities which in turn lead to higher levels of leverage. Originality/value – This is one of the first studies to provide an empirical investigation into the relationship between the level of employee orientation and both financial performance and corporate leverage. Most previous studies have focused on either financial performance or leverage. Furthermore, this is one of the first studies which has its geographical focus on Continental Europe. Most previous studies focused on the Anglo-American corporate environment.