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Evidence from A-Shares: Higher Employee Satisfaction Makes Stock Prices More Shock-Resistant Amid COVID-19

Dragon Tang, Chenyu Shan, MioTech ESG Team, The University of Hong Kong, Shanghai University of Finance and Economics2020-04-28

Dragon Tang, Chenyu Shan, MioTech ESG Team, The University of Hong Kong, Shanghai University of Finance and Economics2020-04-28

COVID-19 has sent the global markets to their abyss since the financial crisis. Investors are keen to know where the stocks are headed in such a volatile market.

Professor Dragon Tang from The University of Hong Kong, and Professor Chenyu Shan from Shanghai University of Finance and Economics, co-authored the paper “The Value of Employee Satisfaction in Disastrous Times: Evidence from COVID-19” to study the correlation between Chinese listed companies’ stock market performance and their employee satisfaction.

The team used MioTech’s employee satisfaction data as stock price indicators and discovered that on February 3, 2020, the first trading day after the virus outbreak, the companies with higher employee satisfaction experienced a smaller stock price drop than those with low employee satisfaction. 

This difference is industry-agnostic as the research methodology adjusted for industry factors. As an intangible asset, human resources have a high impact on knowledge-based industries, such as pharmaceuticals, IT services, and other R&D focused companies. With higher employee morale, these knowledge-based industries can provide more stock returns – about 0.99 percentage points higher than the average. Compared with firms with fewer intangible assets companies with more intangible assets and higher employee satisfaction are 0.55 percent higher on stock returns.

The influence of employee morale is even bigger after adjusting for industry factors. A one-point increase in employee satisfaction will increase a firm’s industry-adjusted return by 30% comparing to the sample mean in the research.

Furthermore, the research factors in the differences between geographies and between state and private ownership. It finds the significance of employee satisfaction across different spectrums regardless of whether the company is located in Hubei, the epicenter of the outbreak, or of any state ownership.

Investors weren’t paying much attention to employee morale as much as they did on cash flow and revenue. But there are researchers who started to find out the relation between stock price and the working environment. These ESG-focused factors have attracted more attention in the past few years, as it would have implications on the stock price in the longer-term. 

MioTech’s Support

MioTech has proudly provided the supporting data for this research. MioTech’s ESG database has the full coverage on over 800,000 private and public Chinese companies, and aggregates as much as 220+ ESG data points into its platform. 

For this research, MioTech provided a sample with 1,343 Chinese listed companies. These companies are located in 32 provinces in China and cover 74(out of 82)  industries listed on Chinese A stock. The data not only contains a score from 1 to 5 that employees gave to their employers, but also comments gathered from various online sources that have been processed by MioTech’s proprietary NLP models. 

The report is among the first studies to unveil the financial impact of COVID-19 with solid data. As the whole world starts to rebuild its economies, this research points the way for corporates to focus on ESG in the post-COVID era. 


To read the full research paper, click here. 

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