Value of employee satisfaction during the financial crisis

Abstract

Purpose The purpose of this paper is to examine how employee satisfaction affects firm value around the financial crisis. Design/methodology/approach The authors use the 2008 financial crisis as exogenous shocks to firms to mitigate endogenous concern that employee satisfaction and firm value can be jointly determined. The authors compare firm value of two groups of firms: the firms on the Fortune magazine’s list of “100 Best Companies to Work For” and matched firms that are not on the list. The authors employ difference-in-difference approaches in the tests. Findings The authors find that when the crisis happens, the best companies experience larger decreases in firm value than comparable firms. In addition, such decreases in firm value only exist among the best companies with high financial flexibility. The authors also show that job satisfaction alone does not create firm value during the financial crisis; only when interacted with high financial flexibility, employee satisfaction leads to high firm value. Finally, the authors document that best companies do not have any advantage in the recovery of firm value after the crisis, regardless of their level of financial flexibility. Research limitations/implications There is considerable debate on whether job satisfaction leads to performance or performance leads to satisfaction (Luthans, 1998). The authors show that the impact of employee satisfaction on firm value changes over time. The authors also identify a crucial factor that impacts the value-creation of employee satisfaction: financial flexibility. The findings suggest that the ambiguous results documented in prior literature can be due to the different sample periods and the failure to identify the impact of financial flexibility in previous studies. Practical implications The findings provide helpful implications to the business community. The evidence suggests that to reap the benefits of employee satisfaction, companies need to manage their financial flexibility to buffer against potential negative shocks while having strong corporate governance mechanism to mitigate agency concerns. Moreover, the study provides an investment recommendation to socially responsible investment (SRI) and suggests that it is better off implementing dynamic SRI investment strategies according to economic condition. Social implications The evidence suggests that the economic value of employee satisfaction is related to firms’ financial flexibility and economic conditions. Originality/value The authors contribute to the literature by showing that the impact of employee satisfaction on firm value changes over time. The test design not only allows the authors to study the effect of employee satisfaction on firm value at a particular point in time, but also helps the authors examine the variation in the effect over economic cycles. This paper also contributes to the literature on SRI. The authors identify a crucial factor that impacts the value-creation of employee satisfaction: financial flexibility.

Corporate culture and stock returns: evidence from Indian companies

“…All these factors constitute the corporate culture, especially the “trust,” “integrity,” “respect” and “teamwork.” In this respect, Guiso et al (2015) find that “integrity” and “respect” are the most advertised values by organizations only after “innovation.” And half of the companies in their sample were found to be advertising “teamwork.” Inasmuch as these variables capture the corporate culture of a company, it can be surmised that “Best Companies to Work For” proxies for corporate culture. Some of the studies that used the GPTWI’s “Best Companies to Work For” survey as a proxy for great corporate culture and best human resource practices include Edmans (2011), Guiso et al (2015), Carvalho and Areal (2016), Blasi et al (2016), Butler et al (2016) and Cao and Chen (2016).…”

“…On the other hand, Saadullah and Rezaee (2012) found that the 100 Best Companies to Work For do not yield a better ROE and ROA than their industry peers. Cao and Chen (2016) reported that job satisfaction enhances firm value only when it interacts with financial flexibility and best companies do not have any advantage in post-crisis recovery.…”

The Verification of Employees’ Dynamic Capabilities Based Model of Job Performance in Organizations Functioning in the Crisis Caused by COVID-19 Pandemic

“…Since most of crises are hard to predict (which is especially a Black Swan type of crisis, which are by definition impossible to predict), and their duration is usually unknown, there is a great uncertainty about future financial results and the organization will keep costs to a minimum to survive on the market (Cao and Chen, 2016). Hence, the organizations undergoing crisis are usually not able to ensure that all the employees' expectations are met.…”

“…It is characteristic for this phase of the crisis that the organization has significant difficulties in planning its activities, due to high unpredictability, dynamic course and extreme speed and intensity (Hackman and Oldham, 1974). In this phase, the organization is primarily focused on a flexible and immediate change of the ways of functioning (Pulakos et al, 2000;Cao and Chen, 2016) so as to ensure the continuity of existence (Cao and Chen, 2016). Unfortunately, in this phase of crisis, employees may find it difficult to adapt to the situation in which the organization finds itself, and the actions they take to prevent losses and achieve results may not be appropriate to the situation (Sotarauta, 2016).…”

Human Resource Management for Increasing Employees’ Satisfaction and Enhancing Competitive Strengths

“…Employees' satisfaction is the key to achieve the organization's goals (William, Schneider, Barbera, and Young, 2012). Cao and Chen (2016) declared that employees' satisfaction is a leverage to enhance work productivity. Companies should be largely benefited when employees' satisfaction is increased (Chi and Gursoy, 2009;Matzler and Renzl, 2007).…”