How can employee welfare help newly listed firms’ prospects?

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Employees care concept. Giant human hands holding and supporting tiny business professionals.

By Dr Eilnaz Kashefi Pour, Associate Professor in Finance, Birmingham Business School; Professor Sofia Johan, Florida Atlantic University; Professor Shima Amini, Leeds Business Schooland Professor Abdul Mohamed, Leeds Business School

When looking at staff, many organisations see their employees as human capital, a resource to be used. Could a focus on employee welfare and wellbeing help companies to gain financial stability?

Given the uncertainty and the organizational transition occurring in newly listed firms, it is understandable that properly governed firm-specific human capital resources are likely to be critical to the success of firms. While firms that value their human resource and use organization-based compensation programs are more likely to survive in the stock market, it is possible that the market may react negatively as firms redirect their capital to employee rewards or compensation programs. Therefore, it is crucial to understand the role played by factors other than firms’ characteristics influencing prospects of newly listed firms to remain quoted or exit from the stock market post-listing.

In this blog we investigate whether entrepreneurs should be concerned about employee welfare and/or social capital, and how this could potentially influence the behaviour of employees when assessing the prospect of their firms remaining quoted or exiting from the stock market.
In our recent study, we looked at the relationship between employee welfare, social capital, and the probability of remaining as a quoted entity on the stock market. Our results show that survival (i.e., remaining as a quoted entity on the stock market) or exit is positively influenced by social capital and/or employee welfare, such as employee involvement, retirement benefits, work/life benefits. More specifically, we find that entrepreneurial firms located in a better social capital region where mutual trust and cooperative behaviour are enhanced, and those offering better employee welfare, remain quoted on the stock market for longer after listing.

Our results show that a unit increase in employee welfare lengthens the average time to remain quoted by 35%, while a unit increase in social capital increases the time by 80%. This is respectively equivalent to an additional two and four years that firms remain quoted on the stock market. The results are crucial, especially during the financial crisis or Covid-19 pandemic when the influence of employee welfare is proven to be stronger within a better social capital environment.

Our research also shows that the source of a positive effect on employee welfare is due to employee involvement and the firm’s efforts to promote diversity within the organization. In addition, the positive impact of social capital is driven by the number of charity organizations in the county. Our results show that entrepreneurial firms should consider the potential of taking advantage of social capital while allocating resources.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the University of Birmingham.

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