New study links "S" factor to credit risk

(21 Sep '09)

A new study released by ECCE provides the first comprehensive evidence that firms with strong employee relations have a relatively lower cost of debt, higher credit ratings, and lower equity volatility.

These results support the growing consensus that  the quality of employee relations affects bondholders through its influence on firm-specific risks. Sound employment practices and policies enhance the level and stability of expected cash flows, and mitigate the risks associated with the harmful behavior of dissatisfied employees. The results have important implications for bondholders as well as for companies' disclosure on employment practices.

The study "Employee relations and credit risk" is available at the ECCE Publications section.