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

Alex Edmans, Darcy Pu (), Chendi Zhang () and Lucius Li ()
Additional contact information
Darcy Pu: London Business School, London NW1 4SA, United Kingdom
Chendi Zhang: University of Exeter Business School, Exeter EX4 4PU, United Kingdom
Lucius Li: Shanghai BOLI Education Technology Ltd., Shanghai 201313, China

Management Science, 2024, vol. 70, issue 7, 4357-4380

Abstract: 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.

Keywords: employee satisfaction; labor market flexibility; socially responsible investing; corporate social responsibility; ESG investing (search for similar items in EconPapers)
Date: 2024
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http://dx.doi.org/10.1287/mnsc.2023.4889 (application/pdf)

Related works:
Working Paper: Employee Satisfaction, Labor Market Flexibility, and Stock Returns Around The World (2014)
Working Paper: Employee Satisfaction, Labor Market Flexibility, and Stock Returns Around The World (2014)
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