Lawsuits Have Significant Negative Effects

Many cross-cultural studies attempt to capture the impact of national culture on a person’s ethical attitudes and behaviors at the individual employee level (e.g., Allmon et al. 1997; Hood and Logsdon 2002). Researchers use Hofstede’s cultural dimensions to operationalize culture and apply them to the process of identifying their impacts on ethical behavior and decision making within organizations A conceptual model developed by Vitell et al. (1993), using Hofstede’s original four cultural dimensions, postulates that a strong relationship could exist between these dimensions and the managerial ethical decision making of companies.

Hofstede (1980, 1983, 1984, 1997) identifies the following four cultural dimensions: power distance, individualism/collectivism, masculinity/femininity, and uncertainty avoidance. The power-distance dimension indicates that workers in countries with a high-power distance are more likely to accept hierarchies and authority within the organizations and follow the opinions of their superiors Investing in employee relationship (and CSR) attributes and activities could be important factors in the building of a firm’s reputation and in the differentiation of products. ERR can lead to increased job satisfaction, which can be an intermediate pathway for a company to achieve greater performance, thus resulting in increased firm value.

Within this discussion, we propose the following hypothesis The individualism/collectivism dimension indicates that collectivists are dependent on others because they think of themselves as parts of organizations, endeavor to achieve group success rather than seeking personal accomplishments, and tend to embrace the ideological identity of the organizations to which they belong, while individualists are emotionally independent, exhibit a high need to fulfill their self-interests, and may not want to be confined to organizational rules and regulations. Although collectivists may be likely to adopt an organizational code of ethics even at the expense of personal interest find that bribery is more acceptable in collectivist cultures than in individualistic ones.

Christie et al. (2003) also argue that managers in countries with low collectivism, and thus high individualism, tend to be more sensitive to ethical issues and view business practices such as gift-giving, nepotism, and software piracy as more unethical than do managers in countries with high collectivism. We argue that, given the lower sensitivity to employment treatment issues in a collectivist society, the effect of investing in ERR is likely higher in the collectivist culture as unit investment in ERR exhibits a higher marginal effect on firm value.

The masculinity/femininity dimension suggests that cultures featured as masculine compel individuals to be ambitious, assertive, competitive, and achievement-oriented, while individuals in feminine cultures are encouraged to be modest, humble, caring, and relationship-oriented. The literature generally documents that highly masculine individuals are less sensitive to the interests of other stakeholders and are less likely to perceive ethical problems than the counterparts in feminine cultures due to the tendency in the masculine culture to seek personal financial gain within a very competitive atmosphere. This indicates that companies dominated by masculine cultures are less likely to engage in a range of human resource management practices that promote favorable employee treatment and that are comprising of varied tools, techniques, and incentives.

Conversely, companies dominated by feminine cultures tend to embrace more employee- friendly human resource policies and take proactive steps to engage in employee relationship-oriented actions, such as work family programs, affirmative action for the recruitment of minorities, etc. We expect that investing in ERR may result in higher marginal effects on firm value in countries with masculine cultures than in those with feminine cultures because the adoption of the ERR in companies dominated by masculine cultures provides them an opportunity to undergo a dramatic transformation in CSR, which, in turn, will result in a greater increase in value creation.

Prior studies find that lawsuits have significant negative effects on firm performance (e.g., Bhagat and Romano, 2002; Viscusi and Hersch, 1990) and cause turnover among executive officers and directors. Also, Hutton et al. (2015) documents that litigation has a greater negative impact on firm value if a CEO is more Republican leaning (politically conservative). However, although many of these studies focus on class-action lawsuits between managers and shareholders, there is little research on employee lawsuits. Therefore, our work pioneers the study of how employee allegations affect firm performance. Lobbying may provide high excess returns when the agency costs resulting from lobbying expenditures are low

However, firm-level engagement in politics may also create potential agency problems if managers exploit firm resources for their own benefit. Lobbying activities and their effect on firm performance may not be fully observable. Lobbying may also have no influence on Tobin’s Q and may even be unethical, which lowers firm performance. Specifically, managers from lobbying firms may earn greater compensation compared to nonlobbying peers. (Firm-level political involvement could yield lower cumulative abnormal returns or political contributions to become a channel for serving the interests of CEOs and other executives, resulting in higher agency costs.

After “occupational health and safety”, “working-time arrangements” is the area in which employee representatives perceive to exert more influence at the work- place level. While working time on a fixed basis is easily contractible, working-time flexibility may not be. Two separate issues arise in this context. At the negotiation stage, it might be costly to write and agree on individual contracts specifying very detailed rules about how and when working time can be varied and rights over time credits/debits can be exercised by the parties. As a consequence, employers may behave in an opportunistic manner ex post and renege on their promise to compensate overtime with time-off.

Employees may end up performing unpaid overtime hours, as the employer can always argue that employees’ claims are not compatible with current company operational needs. In this context, employee representation may facilitate the introduction of flexible working-time arrangements. We also expect the effect of employee representation on flexible working time to vary with firm characteristics. First, we consider the interplay between shop-floor representation and wage-setting institutions. It has been argued that by giving workers more power in enterprises employee voice would affect both the size and the distribution of the joint organizational surplus. Based on a compensating differentials framework, one may argue that the wage rate determined at the establishment level implicitly takes into account workers’ preferences for different workplace amenities, including flexible working time. By contrast, when wages are negotiated at the industry-level, one would expect a shift in the local bargaining agenda towards issues such as fringe benefits and working conditions.

Consistently, empirically show that firms commitment to their employees’ well-being results in conservative dividend policies and Ghaly et al. (2015) find that employee welfare practices are positively related to a firm’s cash holdings. The stakeholder view of capital structure predicts that firms committed to strong relationships with stakeholders are relatively less leveraged to better ensure that their claims can be honored. Empirically, show that firms with higher employee treatment indices maintain lower leverage ratios. Similarly, Verwijmeren and Derwall (2010) find that firms with stronger employee relations have lower leverage and better credit ratings than their peers.

We propose that an important decision that indicates a credible commitment to employees concerns is the choice between long versus short-term debt. First, firms that use more short-term debt face more frequent contract renegotiations. When firms roll over their debt, they risk refinancing at a significantly higher interest rate, or even fail to get refinancing. In the event that lenders are unwilling to refinance, the borrower faces a liquidity risk. In such cases, firms are likely to reduce their investments including in employee welfare. Firms facing high liquidity risk may even be forced to sell off assets at fire-sale prices to obtain funds to pay off debt that is coming due. Employee welfare programs are non-contractual, implicit claims between the firm and its employees. Not bound by law, they are sensitive to the firm’s financial situation.

Thus, firms that place a higher value on their reputation for treating employees fairly should limit their use of short-term debt to indicate their capacity to make good on their commitments towards their employees. Second, a high standard of employee well-being is likely to be reflected in a superior long-term development of firm value and an increased corporate income in the long run. K€orner (2005) and Menz (2010) point out that the increasing interest in sustainability and CSR is a way to counter the enormous focus on short-term value maximization. Drawing on the stakeholder view, sustaining a strong relationship with employees can improve a firm’s longterm profitability. Thus, one would expect that long-term debt investors are more likely to be attracted by firms that favor strong employee relations.

Discussion and Findings:

The ESG information is composed of environmental, social, and (corporate) governance indexes that are collected by more than 130 specially trained analysts from annual reports, company websites, proxy filings, and NGOs as well as from news reports of all major providers (see Thomson Reuter’s data collection and rating methodology). Among the ESG information (i.e., environmental, social, and corporate governance indexes), the social index is aimed at measuring the quality of relationships between a firm and its employees. Therefore, we use the social index as our main measure of ERR. In addition, for the robustness tests, we use an equally weighted ERR index (i.e., EW employee relation), which is defined as the equal weighting of the (mostly) employee- related (five) sub-social indexes, namely, (a) employment quality index, (b) training and development index, (c) health and safety index, (d) diversity index, and (e) human rights index. Hofstede’s cultural dimensions are the most widely used cross-country measures to facilitate an understanding of national cultural differences in financial studies.

In cross-country literature, the logarithm of GDP per capita is an important variable as it controls for economic development. However, logarithm of GDP per capita is strongly correlated with Hofstede’s cultural dimensions, measuring 0.75 (75%), thus raising the possibility of multicollinearity problems.

Thus, if we use both Hofstede’s cultural dimensions and the logarithm of GDP per capita simultaneously in the same regressions, our results can be biased due to the approximate linear relationship. Hofstede’s cultural dimensions are composed of four primary measures, namely, power distance, collectivism/(individualism), masculinity, and uncertainty avoidance, for a maximum of 100 points. Power-distance measures the level of hierarchy in a society. Individuals in high power-distance societies are likely to admit the inequality of power and differences between superiors and subordinates. Higher scores on the collectivist index indicate that individuals tend to think of themselves as part of the organization

and that they endeavor to achieve group success, while lower scores on the collectivist index indicate that individuals tend to fulfill their self-interests, value their personal freedom, and avoid confining themselves to collectivist obligations.

Empirical Formula:

the coefficients of ERR × Power distance residual and ERR × Collectivism residual are positive and statistically significant at the 1% level. Thus, our results suggest that the impact of ERR on firm value is more prominent in countries with more autocratic, unequal power distribution with strong group and collectivistic norms (in higher power-distance cultures/collectivist cultures). ERR × Masculinity residual is strongly positively related to Tobin’s q, supporting the premise that the impact of ERR on firm value is greater in countries with stronger masculine cultures where employees focus on the firm’s success and exhibit competition-oriented attitudes and behaviors and have less consideration for other people. The coefficient of ERR × Uncertainty avoidance residual is positive and significant, indicating that the impact of ERR on firm value will be greater in countries that are unwilling to take a risk in investment activity in ERR due to the potential danger of failure

We use employee litigation, as well as other complaints and violations, to examine the consequences of lobbying to adjust policy proposals. To estimate parameters in our empirical models, the litigation indicators are the main explanatory variables. We calculate two separate litigation indicators: Lawsuit is a binary variable equal to 1 if a firm has at least one lawsuit initiated by employees; it equals zero otherwise. We use Lawsuit to conduct univariate tests to compare lobbying activities across firms in our sample. Our second indicator is Ln(#Litigation), which is the log transformation of the total number of lawsuits filed by employees. We measure lobbying activity in several ways. First, we measure log transformation of the total number of bills sponsored by firms, which is defined as Ln(TotalBills). Second, we specifically calculate log transformation of the total number of labor-related bills, which is Ln(LaborLobby).

First split our sample into two subgroups: firms with employee lawsuits and firms without employee lawsuits. In panel A, we compare subgroups to understand the relation between firm-level political spending and litigation concepts. First, we find that firms with lawsuits spend more on lobbying compared to non-lawsuit firms. In other words, employee litigation is associated with systematically higher lobbying expenses. They also lobby more bills and sponsor more issues on labor-related subjects. Proportionally, more lobbying firms are sued by employees compared to non-lobbying firms. We then compare our firms based on additional political spending. We find that firms with employee lawsuits make bigger PAC contributions. In the same manner, we find that CEOs of the lawsuit firms personally donate more money to political parties compared to the CEOs of the non-lawsuit rivals. We also document that firms with employee lawsuits hire more lobbyists and employ more lobbyists who were former members of Congress.

Consultation was lower level of collective bargaining which was neglected in the earlier studies. Consultations was overpowered by collective bargaining in Indian MSME’s. But the minimal effect through has been consistent in the last decade or so. Consultation in 2018 exists in 24% of the MSME’s in the sample areas but it was dominated by unions. IN 2000- 2002, the consultations existed in 61% of the MSME’s which reduced to 35% in 2010.

MSME’s with consultation facility at workplace. The opinions of employee’s representatives to problems at workplace and feedback on decisions already made and feedback on employee’s options being the methods. These are stable with the rules of MSME’s in India. The results show that firms may not reach regulation needs. The firms communicating their strategy to employee representatives increased from 12% to 22% in 2018. The economic slowdown of 2008-09 would have its impact with firms having the need to work fast to react to it. But the reality seems to vary from this