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Human Relations, Vol. 60, No. 6, 827-849 (2007)
DOI: 10.1177/0018726707080078

Efficiency as a mediator in turnover—organizational performance relations

Paula Morrow

Iowa State University, pmorrow{at}iastate.edu

James McElroy

Department of Management at Iowa State University, jmcelroy{at}iastate.edu

This study adds to scientific understanding of how employee turnover affects organizational performance in a multi-unit commercial bank setting operating in the United States. Theoretically, expected relationships among turnover, efficiency and performance are outlined. Empirically, two indicators of organizational efficiency are examined and one, cost-per-loan efficiency, is found to fully mediate relations between voluntary employee turnover and two organizational performance outcomes, profitability and customer satisfaction, in both synchronous and longitudinal analyses These results replicate recent findings in disparate industries, suggesting that efficiency may explain why higher levels of turnover are typically associated with lower levels of organizational performance. The need to distinguish among conceptualizations of efficiency is discussed, along with the need to consider temporal effects associated with turnover and efficiency.

Key Words: banking industry • efficiency • organizational performance • turnover

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