Employee Satisfaction, Labor Market Flexibility, and Stock Returns Around the World
London Business School - Institute of Finance and Accounting; University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)
Department of Finance, London School of Economics; University of Warwick - Finance Group
University of Warwick - Finance Group
June 24, 2015
European Corporate Governance Institute (ECGI) - Finance Working Paper No. 433/2014
We study the relationship between employee satisfaction and firm performance around the world, using lists of the “Best Companies to Work For” in 14 countries. Employee satisfaction is associated with superior long-run returns, valuation ratios, and profitability in countries with high labor market flexibility, such as the US and UK, but not low labor market flexibility, such as Germany. These results are consistent with high employee satisfaction being a valuable tool for recruitment, retention, and motivation in flexible labor markets, where firms face fewer constraints on hiring and firing. In contrast, in regulated labor markets, legislation already provides minimum standards for worker welfare and so additional expenditure may exhibit diminishing returns. The results have implications for the differential profitability of socially responsible investing (“SRI”) strategies around the world. In particular, they emphasize the importance of considering institutional factors when forming such strategies.
Number of Pages in PDF File: 43
Keywords: Employee Satisfaction, Labor Market Flexibility, Socially Responsible Investing, Corporate Social Responsibility
JEL Classification: G12, G23, G38, J53, J81, J83, J88, K31
Date posted: July 2, 2014 ; Last revised: June 25, 2015
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