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

60 Pages Posted: 2 Jul 2014 Last revised: 9 Jun 2022

See all articles by Alex Edmans

Alex Edmans

London Business School - Institute of Finance and Accounting; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Darcy Pu

London Business School

Chendi Zhang

University of Exeter Business School

Multiple version iconThere are 3 versions of this paper

Date Written: June 6, 2022

Abstract

Studying 30 countries, we find that the link between employee satisfaction and stock returns is significantly increasing in a country’s labor market flexibility. This result is consistent with employee satisfaction having greater recruitment, retention, and motivation benefits where firms face fewer hiring and firing constraints and employees have higher ability to respond to satisfaction. Labor market flexibility also increases the link between employee satisfaction and current valuation ratios, future profitability, and future earnings surprises, inconsistent with omitted risk factors and identifying channels through which employee satisfaction may affect stock 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.

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

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

Suggested Citation

Edmans, Alex and Pu, Darcy and Zhang, Chendi, Employee Satisfaction, Labor Market Flexibility, and Stock Returns Around the World (June 6, 2022). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 433/2014, Jacobs Levy Equity Management Center for Quantitative Financial Research Paper, Available at SSRN: https://ssrn.com/abstract=2461003 or http://dx.doi.org/10.2139/ssrn.2461003

Alex Edmans (Contact Author)

London Business School - Institute of Finance and Accounting ( email )

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European Corporate Governance Institute (ECGI) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Darcy Pu

London Business School ( email )

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London, NW1 4SA
United Kingdom

HOME PAGE: http://www.london.edu/phd/profiles/darcy-pu

Chendi Zhang

University of Exeter Business School ( email )

Streatham Court
Xfi Building, Rennes Dr.
Exeter, EX4 4JH
United Kingdom

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