Balancing customer and employee orientations: impact on financial distress and firm value

PurposeThis paper investigates the effect of balanced orientation (BO) toward customers and employees on financial distress and firm valuation. Rooted in stakeholder theory and the attention-based theory of firms, the study aims to understand how a balanced synthesis of employee orientation (EO) and customer orientation (CO) influences the long-term market performance and survivability of firms, particularly in the context of emerging markets.Design/methodology/approachA panel dataset of the top 500 firms listed on the National Stock Exchange of India was analyzed using fixed-effect panel models with robust estimators. The Heckman procedure was employed to address selection bias. Financial data were sourced from the CMIE Prowess database and balanced orientation data were extracted from the annual letters to shareholders.FindingsThe study finds that a balanced approach to EO and CO significantly lowers bankruptcy risk and increases firm valuation. Contrary to the traditional dichotomy of EO and CO, BO emerges as a key driver in reducing financial distress and enhancing long-term market performance. Firms embracing multiple strategic orientations outperform those solely focused on customer orientation.Practical implicationsFor emerging market firms facing resource constraints, developing BO is challenging but crucial. This study suggests adopting a sequential or alternating approach to developing EO and CO, which can alleviate bankruptcy risk and improve market valuation even in competitive environments.Originality/valueThis paper contributes to the existing literature by empirically demonstrating the significance of BO in emerging markets. It offers a novel perspective on strategic management, highlighting the importance of balancing customer and employee needs, especially in resource-constrained environments.