Study Links Employee Satisfaction with Corporate Financial Performance

A new study from the University of East Anglia (UEA), “Employees’ Online Reviews and Equity Prices,” examines the effect of employee satisfaction on corporate performance using employees’ online reviews of where they work.

Writing in the January 2018 issue of journal Economic Letters, researchers Efthymia Symitsi, Panagiotis Stamolampros and George Daskalakis from UEA's Norwich Business School say that companies rated highly by their current employees in terms of satisfaction achieve greater financial performance compared to firms characterized by low levels of employee satisfaction. The researchers note this association between employee satisfaction and corporate performance indicates that employees’ online reviews are good predictors of a firm’s financial results, and also of value–relevance for investors.

“Increasingly, researchers from a wide range of disciplines argue that in the current knowledge-based economy, employees are a particularly valuable organizational asset as they can contribute to firm value through innovation and customer relationships,” says lead author Symitsi.

The findings have significant implications for both managers and investors, she added, saying: “Ensuring [the] wellbeing and general satisfaction [of workers] should be a major concern for businesses.”

“Our results provide empirical support for a human-centered view [of a company],” says co-author Daskalakis. “Interestingly, however, it seems that this is not wholly recognized by equity investors, providing further evidence that intangibles are not fully priced in the stock market and, most importantly, that this is not due to lack of information, since we measure employee satisfaction on the basis of freely available online reviews.”

Having a human-centered view of a company is in direct contrast to the traditional view, in which employees perform unskilled tasks and therefore are expendable commodities, agrees Symitsi. “Which of the two views is the appropriate one is an issue of the utmost importance for both managers and investors,” she adds.

The study analyzed more than 326,000 employee ratings of 313 U.S. public companies from 2009-2016. The sample only included companies that had more than 500 reviews during the period studied, with quarterly financial data also collected for each company.

Positive employee satisfaction is not fully reflected in equity prices on the stock market, however; an analysis using a trading strategy based on investing in firms characterized by high levels of employee satisfaction achieved statistically and economically significant abnormal returns.

“The reason we find abnormal portfolio returns and, therefore, conclude that this intangible is not fully priced in the stock market, could be because equity investors don’t believe that employee satisfaction is value-relevant for firms or perhaps because it is difficult to actually quantify its value,” says Daskalakis.

This study based its analysis on freely available online reviews that employees posted on job and recruiting site Glassdoor. Previous studies investigating the effect of employee satisfaction on corporate performance are relatively limited and commonly based on the “100 Best Companies to Work for in America” list, published annually by Fortune magazine.

However, to potentially be included in the list, companies need to be certified for a fee first by the California-based Great Place to Work Institute. Therefore, only firms that have, or believe themselves to have, significant levels of employee satisfaction have an incentive to pay this fee and get certified. The study authors argue that this can result in a self-selection bias driving any conclusions.