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 :

October 17 2018
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Keywords

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

We study the relationship between employee satisfaction and firm performance around the world, using lists of the “Best Companies to Work For” in 14 countries.

Employee satisfaction is associated with superior long-run returns, current valuation ratios, future profitability, and earnings surprises in flexible labor markets, such as the US and UK, but not rigid labor markets, such as Germany. These results are consistent with employee satisfaction improving recruitment, retention, and motivation in flexible labor markets, where firms face fewer constraints on hiring and firing and employees have greater ability to respond to higher satisfaction. In rigid labor markets, legislation already provides minimum standards for worker welfare and so additional expenditure may exhibit diminishing 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.

Published in

Published in: 
Description: 
Honorable Mention, Moskowitz Prize for Best Paper in Socially Responsible Investing, 2014

Authors

Real name: 
Lucius Li
Real name: 
Chendi Zhang