Employee Satisfaction, Career Concerns, and Acquirer Performance

Abstract

Employees are the most valuable asset of a firm. To test whether this statement is more than rhetoric, we assemble a novel social media dataset that captures the level of employee satisfaction in S&P 500 firms, and explore its relationship with stock returns in the aftermath of mergers and acquisitions. Our results show that employee satisfaction has a strong long-run positive effect on acquirers’ stock performance, even though its short-run effect on cumulative abnormal returns is largely insignificant. This is in contrast with previous studies wherein the external evaluations of corporate social responsibility have had significant short-run but weaker long-run effects on equity prices. Our results suggest that the stock market is unable to fully incorporate the value of employee satisfaction.