Employee Satisfaction, Labor Unions, and Equity Prices

This paper investigates the role of labor unions in the relation between employee satisfaction and stock returns. Analyzing Korean listed firms from 2002 to 2008 when firms were required to disclose the number of union members in their annual reports, we first confirm a positive association between employee satisfaction and subsequent stock returns, as documented in prior studies. More importantly, we further document that the positive relation is only pronounced for firms without labor unions but not for firms with unions. Subsequent analyses reveal that the difference between unionized firms and non-unionized firms is not attributable to the differential timeliness of investors recognizing employee satisfaction, but to the differential value implications of employee satisfaction in unionized versus nonunionized firms. Specifically we find that employee satisfaction brings more sustainable and better long-run operating performance in non-unionized firms than it does in unionized firms. Our findings suggest that employee satisfaction via labor union activities may not matter to firm value.