How much do firms need to satisfy employees? Evidence from credit spreads and online employee reviews

This paper investigates the effect of employee satisfaction on a firm’s credit risk by leveraging employee reviews from an online platform. The authors construct a subjective perception score (SPS) index, defined as the discrepancy between the online reviews and environmental, social, and corporate governance (ESG) workforce scores. Using the SPS, which is uncorrelated with variables used to assess a firm’s credit quality, this study finds that in high research and development (R&D) intensity sectors, an increase in SPS is associated with an economically significant reduction in credit spreads. Conversely, in low R&D intensity sectors, a higher SPS is associated with higher credit spreads. Finally, evidence suggests that the reduction in credit spreads associated with higher SPS in high R&D intensity sectors is likely driven by increased labor productivity.