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

44 Pages Posted: 25 Sep 2014

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)

Lucius Li

Department of Finance, London School of Economics; University of Warwick - Finance Group

Chendi Zhang

University of Warwick - Finance Group

Multiple version iconThere are 3 versions of this paper

Date Written: July 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 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 taking institutional features into account when forming such strategies.

Keywords: corporate social responsibility, employee satisfaction, labor market flexibility, socially responsible investing

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

Suggested Citation

Edmans, Alex and Li, Lucius and Zhang, Chendi, Employee Satisfaction, Labor Market Flexibility, and Stock Returns Around the World (July 2014). CEPR Discussion Paper No. DP10066. Available at SSRN: https://ssrn.com/abstract=2501540

Alex Edmans (Contact Author)

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

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Lucius Li

Department of Finance, London School of Economics ( email )

LSE
Houghton Street
London, WC2A 2AE
United Kingdom
+44(0)2079556857 (Phone)

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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