Employee Treatment and Bank Default Risk during the Credit Crisis
Publication Name
Journal of Financial Services Research
Abstract
We examine whether banks’ interest in the well-being of their workforce, measured by an index of employee relations strengths, explains their default risk during the recent credit crisis. Using a sample of 179 U.S. banks, we find that banks with greater pre-crisis employee relations strengths experience lower default risk and have higher excess returns during the crisis. These banks have lower asset volatility and leverage, suggesting that bank default risk is mitigated through lowering operational and financial risks. Banks’ prudent risk-taking behavior benefits shareholders in times of heightened risk. The results are robust to alternative model specifications and endogeneity issues.
Open Access Status
This publication is not available as open access
Volume
59
Issue
3
First Page
173
Last Page
208