Employee Flexibility, Exogenous Risk, and Firm Value

Abstract

We hypothesize that employee flexibility enhances firm value by helping firms respond to exogenous shocks. We estimate employee-flexibility scores through textual analysis of online job reviews, and we find that a high flexibility score leads to superior stock returns for firms exposed to external risk. During 2011–2017, the value-weighted hedge portfolio formed on employee flexibility earned a 5-factor annualized alpha of 9.5% during periods of high policy uncertainty. Earnings-announcement returns also suggest that investors do not fully value workforce flexibility. These results indicate that employee flexibility is a valuable corporate intangible that helps firms to manage risk during uncertain times.

Online Employer Reviews as a Data Source: A Systematic Literature Review

“…Finally, Au et al used employer reviews to gain information about the extent of companies' employee flexibility, defined as "employees' ability to react and respond to unexpected changes in the firm's environment" [2, p. 1]. Employee flexibility was positively associated with stock returns for firms exposed to external risk [2].…”

“…More specifically, the authors focused on LIWC's predefined dictionary and extract four dimensions from employer reviews: analytical thinking, clout, authenticity, and emotional tone [12]. Finally, not using any specific text analysis program, Au et al used a dictionary-based method to measure employee flexibility in employer reviews' textual content [2]. Specifically, Au et al developed a word list associated with employee flexibility from literature and extended it using WordNet's thesaurus [2].…”

“…Finally, not using any specific text analysis program, Au et al used a dictionary-based method to measure employee flexibility in employer reviews' textual content [2]. Specifically, Au et al developed a word list associated with employee flexibility from literature and extended it using WordNet's thesaurus [2]. Subsequently, the authors calculated a flexibility ratio for each review by counting the total number of words associated with employee flexibility and dividing it by the total number of words per review.…”

“…Two studies used Indeed as a data source (https://indeed.com) [2,37]. Indeed reviews comprise the following apart from the review date and name of the reviewed employer [2]: reviewer's job title, and location, individual ratings measured on a one-item five-point scale (job/work-life balance, compensation benefits, job satisfaction, management, and job culture), an overall rating as mean of these individual scales, and a free-text comment as well as comments for pros and cons. In this vein, the information provided in Indeed reviews is quite comparable to Glassdoor's review information.…”

“…First, I see further research opportunities in predicting firm performance from information gained from employer reviews' textual content. Only two studies identified with my SLR gained insight into workplace culture from employer reviews' textual content to predict firm performance [2,8]. However, constructs developed for computer-aided text analysis such as organizational psychological capital, which is defined as an "organization's level of positive psychological resources: hope, optimism, resilience, and confidence" [27, p. 157] offer great potential for gaining novel inside into workplace cultures from employer review data to predict firm performance.…”