• Keeping your workforce happy is generally good for productivity, but new research from Durham University finds it makes a company’s stock price more accurate too
• Happy workers who leave reviews give more information to investors, who therefore gain more transparency on the company
• It is important to keep those employees happy or else stock prices could fall

It seems a little too obvious to say that having a happy workforce is a good thing, right? No company wants their employees to be coming into the office every day not enjoying their work, hating the thought of the 9-5, and counting down the hours ‘till they can go back home. Happy employees thrive, and therefore so does the company.

Indeed, most research into the positives of a happy workforce focuses on why good morale is so important for productivity, retention and helping employees go the extra mile for the company. Each of these factors then, in turn, helps to improve company performance, likely leading to a more profitable business – keeping your employees happy is good for them, and for the business.

Yet there has been little research into the impact of a happy workforce on the actual performance of the company’s stock. Although we know happy employees can, in theory, boost a company’s stock price, there are lots of other factors that can do so too. So does keeping your employees happy have a direct impact on the company’s stock price?

The benefits of being happy

New research conducted by Durham University Business School, with the University of Warwick and the University of the West of England, indicates that happy employees do have an impact on the stock price – but perhaps not in the way you would think.

The study found that happy employees don’t necessarily make the stock price higher, but what they do is make the stock price much more accurate.

This is due to increased positive employee reviews on the company giving more insight to investors on how the firm is performing, compared to firms with unsatisfied employees who are not likely to leave a review at all.

To identify these findings, the researchers, Dr Anthony Kyiu, Assistant Professor of Finance at Durham University Business School, Evans Boamah (University of Warwick) and Dr Bernard Tawiah (University of the West of England), reviewed data on almost 300,000 employee reviews from Glassdoor.com for companies in the S&P 500 index during the period 2008 to 2021.

They analysed financial and stock price data on these firms, and measured stock price informativeness by identifying firm stock return variation that was unexplained by other market factors. From this, they discovered that the more positive the employee reviews, the better the stock price informativeness, making the corporate information much more transparent to investors. 

The power of opinion

When employees rate their firms more favourably, it signals higher levels of employee satisfaction and a favourable perception of the firm’s overall performance and work environment. As a result, investors and other market participants are likely to perceive employee ratings as favourable signals of the firm’s prospects, thereby potentially increasing the level of stock price informativeness.

“Investors have typically evaluated a company’s prospects by looking at its financial factors and industry news, However, there is a growing understanding that non-financial data, such as employee reviews, can provide insightful information about a company’s internal operations and future performance,” says Dr Kyiu,

“Employees possess private information that is typically unavailable to external parties or may not be reflected in traditional reports and financial statements – therefore giving greater insight to potential investors, thus making stock prices more responsive to corporate information.”

More broadly, the results show that non-financial data can give investors greater insights into firm performance, and help improve a firm’s information environment thereby enhancing stock price informativeness.

So, what does this mean for companies? Should they be doing more to ensure employees are happy, while encouraging them to share their positive reviews of the company? Well, the researchers suggest that companies should certainly keep more of an eye on non-financial data that can impact stock prices.  Non-financial data is often controllable, and initiatives can be brought in to boost it.

For those who doubt that happiness can make a difference, fortunately there’s already examples out there of businesses following this model to great success.

And for investors? These findings should prompt investors to further review information that is not financially focused as it can give greater, more transparent insights into a firm’s performance, which could help them to make better-informed investment decisions.

So whilst we all know that money can’t buy happiness, it might well be that by focusing on happiness you might just make money.

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