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Return Cross-Predictability in Firms with Similar Employee Satisfaction
2019-11-22 14:21:02
by Jun Tu, SMU

Wednesday, November 27, 2019 | 2:00pm-3:30pm | Room 337, HSBC Business School Building


Abstract


We study the return predictability of similar employee satisfaction (SES) firms using new firm-ranking data of employee satisfaction from Glassdoor. We find that the returns of firm peers with SES have a predictive power for focal firm returns. A long-short portfolio sorted on the lagged returns of SES firm peers yields a significant Fama and French (2018) six-factor alpha of 135 bps per month. This result is distinct from industry and inter-firm momentum effects and cannot be explained by risk-based arguments. Our tests suggest that investors’ limited attention is the primary reason of firms’ underreaction to their SES firm returns.
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