Firms laden with debt may be more likely to “cut corners” on workplace safety, an international study co-led by a researcher from the Australian National University (ANU) in Canberra has found.
“In Australia, the economy has already been strained by the US-China trade war, and firms are experiencing higher survival pressure in the face of COVID-19,” said Dr Di Fan from the ANU College of Business and Economics. Dr Fan co-led the research with a team made up of researchers from Ireland, Spain, Northern Ireland and Hong Kong.
“As a consequence, they may be motivated to take resources from workers.
“Governments should keep an eye on whether workplace safety is being compromised amidst these dire economic conditions.”
Dr Fan said the study, which has been published in Decision Sciences, https://onlinelibrary.wiley.com/journal/15405915 found “companies that risked workplace safety for quick productivity gains experienced a hit to their bottom line in the long run”.
“Debt was a big driver of these risky practices – the higher the debt, the greater the likelihood a company would breach health and safety regulations,” Dr Fan said.
“We found firms taking out loans did not invest this money into human capital – rather they used it to push productivity, which placed operational workers at risk in the process.”
The study also showed any short-term gain from cutting corners will be “short-lived”, according to Dr Fan.
“Risky practices, such as cutting corners on safety, harms sales growth, return on assets and ultimately the bottom line, so it’s not worth it in the long term,” he said.
“On average, profit margins dropped by 1.27% in the first year after a safety breach, with a hit to sales growth of 3.62% and a reduction of 1.34% to the return on assets for the same period of time.
“These are significant figures, especially at a time when global economies are contracting so rapidly.
“Prioritising profit over safety for short-term financial gains is ultimately a lose-lose situation; it ends up being bad for the firm, bad for the workers, bad for the shareholders and bad for society as a whole.”