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

42 Pages Posted: 24 Jul 2014 Last revised: 21 Jun 2023

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

KFUPM Business School

Chendi Zhang

University of Exeter Business School

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.

Suggested Citation

Edmans, Alex and Li, Lucius and Zhang, Chendi, Employee Satisfaction, Labor Market Flexibility, and Stock Returns Around the World (July 2014). NBER Working Paper No. w20300, Available at SSRN: https://ssrn.com/abstract=2471193

Alex Edmans (Contact Author)

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

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European Corporate Governance Institute (ECGI) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

London
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Lucius Li

KFUPM Business School ( email )

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KFUPM
Dhahran, Easetern Province 31261
Saudi Arabia

Chendi Zhang

University of Exeter Business School ( email )

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Xfi Building, Rennes Dr.
Exeter, EX4 4JH
United Kingdom

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