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

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

Alex Edmans, Lucius Li, Chendi Zhang

Series number :

Serial Number: 
433/2014

Date posted :

July 01 2014

Last revised :

July 14 2014
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Keywords

  • Employee Satisfaction • 
  • Labor Market Flexibility • 
  • socially responsible investing • 
  • Corporate Social Responsibility

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.

Authors

Real name: 
Lucius Li
Real name: 
Chendi Zhang