Your portal to
enterprise engagement

China Study: Employee Satisfaction Drives Stock Performance in Hard Times and Good

Happy employeesA study to be published in the academic journal Review of Finance finds a direct link between employee satisfaction in publicly held companies in China and their share price performance on the stock market.

The Cost of Employee Engagement Pays Off in Share Price Returns
Findings Suggest More Than a Temporary Effect
 

Research support for the impact of employee satisfaction and financial returns comes from China in a recently published study by Chenyu Shan and Dragon Yongjun Tang, “The Value of Employee Satisfaction in Disastrous Times: Evidence from COVID-19”, March 30, 2022.” 

The authors write, “Using unique data for Chinese publicly listed firms, we show that having satisfied employees is valuable to the firm. Specifically, firms with higher employee satisfaction scores withstand COVID-19 better in terms of stock market performance. Such an effect is more pronounced for firms with more intangible assets and in knowledge-based industries. Moreover, higher employee satisfaction scores predict better operating performance. While not fully revealed in tranquil times, the effect of employee satisfaction is materialized when the firms experience negative shocks, such as COVID-19. Our findings suggest that firms can do well in crisis periods by doing good in normal times.”

The Cost of Employee Engagement Pays Off in Share Price Returns


They observe that “employee treatment is an important but challenging element of corporate environmental, social, and governance (ESG) policies. Satisfying employee needs can increase corporate productivity but is also costly to shareholders.”

They continue, "The findings suggest that the effect of the observed rank-and-file employee satisfaction on stock returns is not limited to directly infected areas. Instead, healthy people who continue to work for their employers drive the stock price reaction to the pandemic shock. We extend the event window to five, 10, 20, and 60 trading days (around three calendar months) after the initial reaction on Feb. 3, 2001 and find that the outperformance of high employee satisfaction stocks remains significant during those extended periods. We proceed to examine whether the employee satisfaction effect is temporary or persistent during the sample period. We sort stocks based on the previous year’s employee satisfaction scores into high- and low-satisfaction portfolios. Controlling for the Fama-French five factors, we find significant and positive excess returns of the high portfolios. The results are robust to alternative weighting schemes and benchmarks.”

Findings Suggest More Than a Temporary Effect


The authors say these findings “suggest that employee satisfaction goes beyond a temporary effect, and has a long-term effect on stock market performance.  The stock price reaction suggests that firms which have regularly treated their employees well can weather negative economic shocks better. High morale is important for working-from-home arrangements or no-pay leaves, which are meant to ease the financial burden on firms. In contrast, firms that have treated their workers poorly in the past may not have the necessary support from their workers during this disastrous time.”

The authors signal the impact of corporate culture. “It is worth noting that, even though corporate culture is known before COVID-19, its value is not revealed until difficult times, when people pay more attention to such nuisances and when individuals are personally experiencing the negative impacts. This point of investor awareness during crisis is also made by Servaes and Tamayo (2013). Supporting such human capital or employee morale channels, we find the employee satisfaction effect to be stronger in firms with more intangible assets and in knowledge-based industries.”

[return to top]

Master the “S” of Environmental, Social, Governance (ESG), A.k.a. Stakeholder Capitalism
 
The Enterprise Engagement Alliance at TheEEA.org is the world’s first and only organization that focuses on outreach, certification and training, and advisory services to help organizations achieve their goals by fostering the proactive involvement of all stakeholders. This includes customers, employees, distribution and supply chain partners, and communities, or anyone connected to an organization’s success.
 
Training and Thought Leadership 
  • Founded in 2008, the Enterprise Engagement Alliance provides outreach, learning and certification in Enterprise Engagement, an implementation process for the “S” or Social of Stakeholder Capitalism and Human Capital Management and measurement of engagement across the organization.
  • The Enterprise Engagement Alliance provides a training and certification program for business leaders, practitioners, and solution providers, as well as executive briefings and human capital gap analyses for senior leaders.
  • The EEA produces an education program for CFOs for the CFO.University training program on Human Capital Management.
  • Join the EEA to become a leader in the implementation of the “S” of ESG and Stakeholder Capitalism. 
Engagement Digital Media and Marketplaces
Video Learning
The EEA Human Capital Management and ROI of Engagement YouTube channel features a growing library of 30- to 60-minute panel discussions with leading experts in all areas of engagement and total rewards.
 
Books
Enterprise Engagement Advisory Services 
The Engagement Agency helps:
  • Organizations of all types develop strategic Stakeholder Capitalism and Enterprise Engagement processes and human capital management and reporting strategies; conduct human capital gap analyses; design and implement strategic human capital management and reporting plans that address DEI (Diversity, Equity, and Inclusion), and assist with managed outsourcing of engagement products and services.
  • Human resources, sales and marketing solution providers profit from the emerging discipline of human capital management and ROI of engagement through training and marketing services.
  • Investors make sense of human capital reporting by public companies.
  • Buyers and sellers of companies in the engagement space or business owners or buyers who seek to account for human capital in their mergers and acquistions

Click here for complete information on Enterprise Engagement Alliance benefits and to join.  

For more information: Contact Bruce Bolger at Bolger@TheICEE.org or call 914-591-7600, ext. 230. 
 


Earn Big $ In EEA Referral Program
Enterprise Engagement Resources
Committed to Stakeholder Capitalism   Refer, Rate, Suggest & Earn
Engagement Solutions

EGR

Incentco: The No. 1 Suite of Engagement Technologies.

HMI: Business-to-business incentive solutions

BCAT

Catalyst Performance Group

Lorandus

Tak

CarltonOne

LowerMyShowCosts.com

BMC

Fire Light Group

Luxe Incentives

Transcen

Incentive Team