ARE HAPPIER FIRMS GETTING BETTER LOANS? RELATIONSHIP BETWEEN EMPLOYEE SATISFACTION AND COST OF BANK LOANS

Abstract

This paper studies the characteristics of bank loans taken by firms included in Fortune magazine’s annual “100 Best Companies to Work For” list. From 1998 to 2017, the happiest firms on average are able to receive loans with 6% to 9% lower spreads. The results are robust after controlling for loan facility, firm, and industry-level characteristics. To solve endogeneity issue, propensity score matching and simultaneous equation models are adapted to isolate the effect of employee satisfaction. These findings show that employee satisfaction is a valuable asset to a firm. Creditors, as external stakeholders, view firms with higher workplace happiness as having lower risks, and use firms’ inclusion in the Best Companies list to screen for companies with best workplace practices. This paper shows the impact of employee satisfaction on cost of bank loans and contributes to the broad discussion on value of CSR investments.