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

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

Alex Edmans, Chendi Zhang, Darcy Pu, Lucius Li

Series number :

Serial Number: 
433/2014

Date posted :

July 01 2014

Last revised :

September 18 2023
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Keywords

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

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 greater 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.

Published in

Published in: 
Description: 
Management Science, forthcoming

Authors

Real name:
Lucius Li
Real name:
Darcy Pu
Real name:
Chendi Zhang