Return Cross-Predictability in Firms with Similar Employee Satisfaction
62 Pages Posted: 16 Oct 2019 Last revised: 20 Jul 2021
Date Written: October 15, 2019
This study uses Glassdoor data and finds that the returns of similar employee satisfaction (SES) firms predict focal firm returns. A long-short portfolio sorted on the lagged returns of SES firms yields the Fama-French six-factor alpha of 135 bps per month. The observed predictability is distinct from existing inter-firm momentum effects and cannot be explained by risk-based arguments. The return predictability across SES firms may reflect a new type of cross-firm link derived from the knowledge spillovers about employee welfare policies via social transmissions (e.g., personal interchange among employees from different firms).
Keywords: Employee satisfaction, Return predictability, Investors’ inattention, Knowledge spillover, Social transmissions
JEL Classification: G11, G14, G15
Suggested Citation: Suggested Citation