A Friend in Need is a Friend Indeed : Employee Friendliness and Working Capital Management

We examine the effect of a firm's employee friendliness on short-term financing. We find that employee-friendly firms have significantly shorter Cash Conversion Cycle (CCC) compared to other firms. We further establish that the shorter CCC in employee-friendly firms is mainly due to the longer Days Payable Outstanding (DPO). Using financial constraint as an exogenous shock, we provide evidence that the relationship of employee friendliness with shorter CCC and longer DPO is strongly significant for the firms with a lower probability of bankruptcy but not related to the firms with a higher probability of bankruptcy