Do Employee Friendliness Practices Affect Bank Performance Volatility? Evidence from Emerging Economies in Africa

Abstract

This study examines how employee friendliness influences performance volatility in banks. We differentiate inherent and residual volatility. Using 32 public banks in four emerging African economies from 2005 to 2021, we find that employee friendliness practices are positively associated with performance volatility. We also show that employee-friendly practices have a stronger impact on inherent cashflow (earnings) volatility in large (small) banks and low capital banks. This shows that employee friendliness may give banks with little capital a reputational protection. Finally, we discover a negative and significant association between employee friendliness practices and earnings smoothness, suggesting employee friendliness affects earnings quality.

Keywords: Africa, Cash flow volatility, Earnings volatility, Employee friendliness practices, Performance volatility, Emerging economies