Abstract

http://ssrn.com/abstract=2461003
 


 



Employee Satisfaction, Labor Market Flexibility, and Stock Returns Around the World


Alex Edmans


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)

Lucius Li


University of Warwick - Finance Group

Chendi Zhang


University of Warwick - Finance Group

July 8, 2014

European Corporate Governance Institute (ECGI) - Finance Working Paper No. 433/2014

Abstract:     
We study the relationship between employee satisfaction and abnormal stock returns around the world, using lists of the “Best Companies to Work For” in 14 countries. We show that employee satisfaction is associated with positive abnormal returns in countries with high labor market flexibility, such as the U.S. and U.K., but not in countries with 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 rigid 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 taking institutional features into account when forming such strategies.

Number of Pages in PDF File: 47

Keywords: Employee Satisfaction, Labor Market Flexibility, Socially Responsible Investing, Corporate Social Responsibility

JEL Classification: G12, G23, G38, J53, J81, J83, J88, K31

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Date posted: July 2, 2014 ; Last revised: October 30, 2014

Suggested Citation

Edmans, Alex and Li, Lucius and Zhang, Chendi, Employee Satisfaction, Labor Market Flexibility, and Stock Returns Around the World (July 8, 2014). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 433/2014. Available at SSRN: http://ssrn.com/abstract=2461003 or http://dx.doi.org/10.2139/ssrn.2461003

Contact Information

Alex Edmans (Contact Author)
London Business School - Institute of Finance and Accounting ( email )
Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
University of Pennsylvania - The Wharton School ( email )
3733 Spruce Street
Philadelphia, PA 19104-6374
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Lucius Li
University of Warwick - Finance Group ( email )
Gibbet Hill Rd
West Midlands, CV4 7AL
United Kingdom
Chendi Zhang
University of Warwick - Finance Group ( email )
Gibbet Hill Rd
Coventry, CV4 7AL
Great Britain
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