Debt and the Benchmarking Practices in HR: An Analysis in The Context of Capital Structure of Motor Companies in India

Authors

  • Sonia Viswam
  • Mohammad Zohair

Abstract

There is a high level of conflict among the stake holders in a high growth firm. The shareholders will try to pass the risk to the creditors whereas the creditors will not allow the risk beyond a certain limit. But the shareholders will be averse to issue equity as the source of financing or will resort to the long-term debt at higher percentage than required for the firm in the context of a surplus cash flow. Also, the other stake holders like employees and the managers may like to use the cash flow to increase their compensation which may affect the future investment prospects. So, in this context this may lead to the increase in the conflicts within the organisation and thereby the agency costs. This is more significant in the case of the high growth firms where the cash flow is positive and surplus is required for further growth. this conflict can be reduced by two methods, one by making the debt which is the long-term at the minimum and the debt which is the short-term at the maximum possible percentage and introduction of strict covenants for the firm. So, the good HR practices are determined by their capability to maintain long-term debt at the minimum and the enforcement of strict covenants to avoid the situations that will lead to the transfer of risks to the creditors. So, the paper tries to explore the capability of the management to enforce these two aspects and introduces 2 new methods for benchmarking the efficiency of the HR practices inside a firm. Also, it will be a new tool in the conflict reduction of the firm and will increase the value as well as the satisfaction of the employees of a firm..

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Published

2020-04-09

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Articles