World Monitor Magazine WM_KIOGE 2018_Web | Page 61

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Those with stronger EF workplaces
also have higher sales-to-assets ratios,
have lower expenditures, and file more
patents.
Overall, the findings are consistent with
the concept that treating employees
well leads them to work harder, be
efficient, and do more for the company.
Underscoring the importance of regula-
tory systems, the impact of EF culture
on firm value is also stronger in na-
tions with more stringent protections
for investors and at companies that
have better board governance, more
independent directors, and incentive
packages for managers that are tied to
performance, the authors found. “These
results suggest that creating an EF cul-
ture is value enhancing when managers
make choices (including the creation
of an EF culture) that are in line with
shareholders’ interests,” they write.
The findings are consistent with the
concept that treating employees well
leads them to work harder, be efficient,
and do more for the company.
Of course, one could argue that the
companies with higher EF valuations
can simply afford to spend more on
The findings are
consistent with
the concept
that treating
employees well
leads them to
work harder, be
efficient, and
do more for the
company.
their employees to create a more
satisfactory workplace, and that having
an EF culture doesn’t necessarily lead
to better company performance, but
vice versa.
However, the authors note that the
period of their study allowed them to
analyze the effects following the enact-
ment of laws requiring more lenient
parental leave in several European
countries, which served as a proxy for
an improvement to the EF aspect of
the workplace. The authors found that
the implementation of more gener-
ous leave guidelines had a positive
effect on the value of firms, especially
for those with relatively poor parental
leave policies before the laws took
effect.
The study period also allowed the
authors to examine companies before,
during, and after the Great Recession.
Companies with a stronger EF culture
going into the recession performed
significantly better during and after
the downturn, the authors found, which
suggests that the advantages gleaned
from having a happy workforce are
relatively sustainable and can make a
real and measurable difference during
a crisis.
Source: “Does It Pay to Treat Employees
Well? International Evidence on the Value
of Employee-Friendly Culture,” by Larry
Fauver (University of Tennessee), Michael
B. McDonald (Fairfield University), and
Alvaro G. Taboada (Mississippi State
University), Journal of Corporate Finance,
June 2018, vol. 50
Provided by: strategy +business
supported by EUROBAK
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