Managerial Time Horizons and the Decision to Put Operational Workers at Risk: The Role of Debt

ABSTRACT Previous research has established a link between the debt component of capital structure and managers making risky decisions. Literature in finance and strategy has explored the role of debt and concluded that increases in debt focus managerial decision making on short‐term financial goals, suggesting that increases in debt might also lead to managers making decisions that put operational workers and the firm at long‐term risk. Therefore this research explores if the strategic choice of a firm's level of debt predicts the firm's likelihood of breaching safety regulations. Furthermore, this study explores the short‐ and long‐term financial implications of breaching safety regulations. Secondary safety and financial data collected in the United Kingdom is used to answer the research questions using logistic models and an event study. The results show that decisions on debt are a significant predictor of a firm's likelihood of breaching safety regulation and that breaching safety regulation harms long‐term financial performance. Strategic decisions on debt levels lead to further decisions that place the workforce and profitability of the firm at risk.