Employee Treatment and Contracting with Bank Lenders: An Instrumental Approach for Stakeholder Management

  • Bill Francis
  • Iftekhar Hasan
  • Liuling Liu
  • Haizhi WangEmail author
Original Paper


Adopting an instrumental approach for stakeholder management, we focus on two primary stakeholder groups (employees and creditors) to investigate the relationship between employee treatment and loan contracts with banks. We find strong evidence that fair employee treatment reduces loan price and limits the use of financial covenants. In addition, we document that relationship bank lenders price both the levels and changes in the quality of employee treatment, whereas first-time bank lenders only care about the levels of fair employee treatment. Taking a contingency perspective, we find that industry competition and firm asset intangibility moderate the relationship between good human resource management and bank loan costs. The cost reduction effect of fair employee treatment is stronger for firms operating in a more competitive industry and having higher levels of intangible assets.


Employee treatment Stakeholder management Instrumental approach Cost of bank loans Loan covenants 



This research is supprted by the Research Bureau at People's Bank of China, the Major Program of the National Natural Science Foundation of China (Grant 13&ZD016, and the Key Program of the National Natural Science Foundation of China (Grant 12AZD095).

Compliance with Ethical Standards

Ethical Approval

This article does not contain any studies with human participants or animals performed by any of the authors.

Conflict of interest

The authors declare that they have no conflict of interest.


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Copyright information

© Springer Science+Business Media B.V. 2017

Authors and Affiliations

  • Bill Francis
    • 1
  • Iftekhar Hasan
    • 2
  • Liuling Liu
    • 3
  • Haizhi Wang
    • 4
    • 5
    Email author
  1. 1.Lally School of ManagementRensselaer Polytechnic InstituteTroyUSA
  2. 2.Fordham University, Bank of Finland and University of SydneyNew YorkUSA
  3. 3.College of BusinessBowling Green State UniversityBowling GreenUSA
  4. 4.Stuart School of BusinessIllinois Institute of TechnologyChicagoUSA
  5. 5.Zhongnan University of Economics and LawWuhanChina

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