Employee Satisfaction, Labor Market Flexibility, and Stock Returns Around the World
London Business School - Institute of Finance and Accounting; 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, 2016
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, current valuation ratios, future profitability, and earnings surprises in flexible labor markets, such as the US and UK, but not rigid labor markets, such as Germany. These results are consistent with employee satisfaction improving recruitment, retention, and motivation in flexible labor markets, where firms face fewer constraints on hiring and firing. In rigid labor markets, legislation already provides minimum standards for worker welfare and so additional expenditure may exhibit diminishing returns. The findings have implications for the differential profitability of socially responsible investing strategies around the world – in particular, the importance of considering institutional factors when forming such strategies.
Number of Pages in PDF File: 45
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, 2016
© 2016 Social Science Electronic Publishing, Inc. All Rights Reserved.
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