Does Employee Happiness Create A Value On Stocks?
14 Pages Posted: 26 Aug 2014 Last revised: 21 Jun 2017
Date Written: June 11, 2016
This paper studies impact of employee happiness on stock prices. Using Carhart’s (1997) four-factor analysis, we document an existence of 0.3160% monthly (3.86% annualized) abnormal returns in equal-weighted portfolio of the “Best 100 Companies to Work For” during 2001-2015 periods. Additionally, we shows that this monthly alpha can be maximized up to 0.3385% (3.77% annualized) just by altering weights of portfolios on the basis of firms' list rankings.
Besides, the paper also sheds light on superiority/inferiority of newcomer/dropped firms in terms of earning abnormal returns. We observe that ranking-weighted newcomers' portfolio generate 0.3806% monthly (4.66% annualized) four-factor alpha, while dropped firms' portfolio gets a negative monthly alpha of 0.1755% (-2.09% annualized).
Lastly, our longevity analysis reveals inefficiency of market in valuing intangibles immediately. The findings indicate that appearing on the happiest list creates a value, but the market assimilates it only after 27 months.
Keywords: Employee Satisfaction, Employee Happiness, Market Efficiency, Carhart Four-Factor Model, Four-factor Alpha, Abnormal Stock Returns
JEL Classification: G11, G15, G31
Suggested Citation: Suggested Citation