The effects of promoting the workforce's well-being on the financial performance and stock market price of global tourism companies

Technical Summary: The Effects of Promoting Workforce Well-being on Global Tourism Companies

Problem Statement and Motivation
This research investigates the relationship between the promotion of workforce well-being—operationalized as High-Performing Working Policies (HPWP)—and the financial performance and stock market valuation of global tourism companies. The study addresses two primary theoretical tensions:

1. The "Happy/Productive Workers" Hypothesis: Whether improved employee well-being directly translates to higher productivity and, subsequently, higher company profitability (measured by Return on Equity, ROE).
2. The "Market of Lemons" vs. Signal Processing: Whether investors properly price HPWP efforts in stock valuations. Drawing on Krausert (2016) and Akerlof (1978), the authors examine if HPWP serves as a valid signal for investors or if information asymmetries lead to mispricing (a "market of lemons" where high-quality firms are indistinguishable from low-quality ones).

The study focuses specifically on the tourism sector (hotels, entertainment services, cruise lines, casinos), which is highly sensitive to workforce motivation and productivity, distinguishing it from the broader transportation sector due to the latter's volatility driven by energy prices.

Methodology
The authors employed an econometric approach using panel data to test two null hypotheses regarding the impact of HPWP on ROE and stock price performance.

• Data Source and Sample: The study utilizes yearly data from 2011 to 2024 for 141 companies listed in the Refinitiv Global Hotel and Entertainment Services price returns index.
• Variables:
  • Independent Variable: The Refinitiv Workforce Score (0–100), a proxy for the quality and quantity of HPWP. This score aggregates approximately 19 items related to working conditions, strike frequency, accident rates, health policies, and employee satisfaction.
  • Dependent Variables:
    1. Return on Equity (ROE): Calculated as 12-month net profits divided by the 12-month average equity.
    2. Stock Price Performance: Measured as the percentage increase in stock price ($\Delta\%P$).
  • Control Variables: To address endogeneity and isolate the effect of HPWP, the models control for:
    • Fundamental Factors: Debt-to-assets ratio (leverage) and Price-to-Earnings (P/E) ratio.
    • Market Factors: Carhart (1997) multifactor pricing components, specifically Market Risk ($MKT$), Size ($SMB$), and Value ($GMV$) factors, derived from MSCI World indices.
    • Volatility and Behavioral Factors: VIX (implied volatility), Baker et al. (2016) Global Economic Uncertainty index, Pandemic Volatility tracker, Geopolitical Risk tracker, Foreign Exchange Volatility, and Commodity Market Volatility.
• Econometric Models: The authors estimated two unbalanced fixed-effects panel regression models:
  1. Profitability Model: $ROE_{i,t} = \alpha + \beta_1 HPWP_{i,t} + \beta_2 HPWP_{i,t-1} + \gamma_1 (D/A)_{i,t} + \gamma_2 PE_{i,t} + F + M + B$
  2. Stock Price Model: $\Delta\%P_{i,t} = \alpha + \beta_1 HPWP_{i,t} + \beta_2 HPWP_{i,t-1} + \gamma_1 (D/A)_{i,t} + \gamma_2 ROE_{i,t} + F + M + B$

Key Results
The empirical analysis yielded distinct findings for the two hypotheses:

1. Rejection of the Happy/Productive Workers Hypothesis: The study found no direct and significant relationship between HPWP scores and company profitability (ROE). The data does not support the claim that promoting workforce well-being directly increases the return on equity for global tourism companies.
2. Validation of Investor Pricing (Signal Processing): Conversely, the study found a positive and significant relationship between HPWP scores and stock market price performance. Tourism companies in specific countries (including Brazil, Canada, China, France, the U.K., the U.S., and others) with higher workforce well-being scores command higher stock prices.
3. Interpretation of Findings: The authors conclude that the higher stock prices associated with HPWP are driven by investor expectations rather than realized improvements in current profits. Investors appear to view HPWP as a positive signal for future value, effectively pricing these companies higher despite the lack of immediate profitability gains. This contradicts the "market of lemons" hypothesis, suggesting that the market does distinguish and reward high-quality HPWP signals.

Significance and Contribution
The paper contributes to the academic debate between Friedman's (2007) view that corporate social responsibility (CSR) detracts from profit maximization and Freeman's (1984; 1994) stakeholder theory, which posits long-term benefits from social efforts.

• Sector Specificity: Unlike previous studies that examined broad sectors or found null results (e.g., De la Torre-Torres et al., 2024), this paper isolates the tourism industry, demonstrating that while HPWP may not immediately boost ROE, it is a critical factor in market valuation within this labor-intensive sector.
• Signal Theory: The research supports the notion that ESG-related workforce scores act as effective signals to investors. It suggests that even in the absence of immediate financial returns (ROE), the market rewards companies that demonstrate high standards in human resource management, likely anticipating future productivity or risk mitigation benefits.
• Policy Implication: The findings suggest that for global tourism companies, investing in workforce well-being is a viable strategy for enhancing market valuation, even if the direct link to current profitability remains unproven.

The authors maintain a modest stance, noting that while the stock price effect is clear, the mechanism (expectations vs. realized productivity) requires further investigation, and the results are specific to the tourism sector and the 2011–2024 timeframe.