SATISFIED EMPLOYEES, SATISFIED INVESTORS: IMPLICATIONS FOR QUALITY INVESTING

This paper links the stock return premium on high employee satisfaction to the quality factor. Firms with high levels of employee satisfaction attain abnormal stock returns, but, simultaneously, characteristics of high quality firms are often also found in firms with high levels of employee satisfaction. I hypothesize that there exists a link between the employee satisfaction premium and the quality premium. Firstly, I question whether employee satisfaction is providing a similar signal as the quality signal, but I find that the abnormal returns on stocks with high employee satisfaction are not attributable to the quality factor. Secondly, I test whether employee satisfaction may provide an additional signal for quality and I find that the quality factor can be improved by expanding it to include a measure of employee satisfaction. This analysis has implications for a better understanding of the quality factor, which has received a lot of attention from both, industry and academic researchers.