Employee-friendly Practices, Product Market Competition and Firm Value
Abstract
In this paper, we examine whether employee‐friendly practices are associated with product market competition, and whether firm value is related to employee‐friendly practices and product market competition. Using a large sample of US firms, we find positive and significant associations between employee friendliness and product market competition, and between firm value and employee friendliness when product market competition is high, consistent with the value creation theory. Both positive relations hold when we account for corporate governance. In addition, using the list of Fortune's ‘100 Best Companies to Work For’ as an alternative measure of employee‐friendly policies, we find firms in more competitive industries are more likely to treat their workers favourably. Furthermore, we find that the market reaction is more positive when firms in more competitive industries are selected for the Fortune list.