Does Financial Stability Enhance Employee Retention and Productivity? Evidence from Pakistan’s Service Industry

Abstract

The paper examines the connection between financial stability, employee retention, and productivity in the service sector in Pakistan based on panel data between 2012-2023. It discusses the effect of liquidity, profitability, and leverage on the workforce stability and the performance of the firms. Findings indicate that financial stability firms, i.e., those that are better liquid and profitable, perform better in terms of employee retention and productivity whereas excessive leverage has a negative impact on both. These results indicate that well-managed financial means allow the organizations to invest in human resource, training and the welfare of the workforce leading to increased productivity and decreased turnover. The research combines the knowledge of the human resource and financial management theory and presents new evidence in the setting of an emerging economy. The suggestions to the policy include ensuring working-capital reserves, minimizing financial risk, and balancing financial and HR policies towards sustainable growth.