Work Environment and Employee Performance: Evidence from Sell-Side Analysts
Shuya Liu & Kevin Sun
Journal Title:Review of Business: Interdisciplinary Journal on Risk and Society
Motivation: While there is ample evidence that work environment quality is positively related to firm performance, there is limited evidence on whether the positive relation between work environment and firm performance is due to the claim that employees’ satisfaction with their work environment increases their job performance. We attempt to fill in this void by investigating how stock analysts’ rating of work environment is related to their job performance.
Premise: We examine whether analysts in a better-rated work environment ex- pend more efforts, are more capable, and have high-quality stock recommendations.
Approach: We use Glassdoor ratings as a proxy for employee satisfaction of work environment. Glassdoor.com is a website where current and past employees can rate their overall work environment and provide feedback about their firms. We regress analysts forecast accuracy, forecast frequency, and stock market reaction to analysts’ buy/sell recommendation on Glassdoor ratings, and the squared term of Glassdoor ratings.
Results: We find that in better-rated brokerage firms, analysts issue more frequent and more accurate earnings forecasts, and their stock recommendations produce a larger stock market reaction. The coefficient on the squared term of Glassdoor rating is negative, indicating a concave relationship between work environment quality and job performance. We also find that this nonlinear relationship only exists after an analyst works for a brokerage firm for at least two years. In addition, highly rated brokerages have better analyst retention and a lower percentage of employee turnover.
Conclusion: We find that out of five subcategories of work environment ratings, Career Opportunities and Culture & Values have consistently demonstrated their positive impact on analyst job performance. Our research demonstrates long-term benefits of investing in employees.
Consistency: Our research contributes to the literature on environment, sustain- ability, and governance (ESG) and labor economics. The findings indicate the need to spend on improving work environments that may improve employee performance.