When it comes to employee performance, a 10% increase in monthly stock investment returns leads to 3.8% decrease in work output, said Hong Kong Baptist University’s School of Business recently.
According to a HKBU study, stock market investment has been a favoured source of passive income for a while and constitutes a significant portion of household incomes worldwide.
As a result, the stock market has a significant impact on household wealth accumulation, which serves as an important transmission channel from the stock market to the real economy, the HKBU School of Business noted.
The wealth accumulated can directly affect aggregate tax revenues or indirectly reshape households’ real decision making, the school added.
The study — researching how labour supply responds to changes in stock market wealth on an individual level — was conducted by Dr. Xin Zou of HKBU School of Business, along with Teng Li of Sun Yat-sen University, Wenlan Qian of HKU Business School and NUS Business School, and Wei A. Xiong from the Shenzhen Stock Exchange, China.
“Previous studies have found behavioural factors including investor mood and reference dependence impact stock market investment behaviour and inversely how stock market shocks impact household decisions,” said Dr. Xin Zou of HKBU School of Business. “But our research offers the first causal estimate of the labour supply response.”
The methodology used in this research involved combining two datasets to construct the main sample: a large panel dataset of the monthly employee performance — in this case performance of sales agents from a leading Chinese insurance company — and the stock investment information from Shenzhen Stock Exchange (SZSE), said HKBU School of Business.
Supplemental stock characteristics and market return information were also obtained from the China Stock Market & Accounting Research Database, the school added.
Major findings
According to the HKBU School of Business, there are two major findings about employee performance as follows.
Stock investment returns have a significant negative effect on workers’ subsequent work output
Specifically, linking individual-level employee performance data with stock investment information showed that a 10% increase in the monthly returns is associated with a 3.8% decrease in the insurance sales commission in the subsequent month.
Additionally, the impact is larger when the stock investment returns are higher relative to the baseline income of the worker.
To corroborate this causal interpretation, the research also provided evidence to support that the relation between stock investment returns and subsequent sales commission is unlikely driven by a collection of common macro or local economic factors, as well as individual-specific liquidity needs.
The negative relation between stock investment returns and worker output is immediate
Only the last-month stock investment returns exhibited a statistically and economically significant impact on current-month sales commission – indicating that the effect is immediate and noteworthy.
This temporal pattern of the response findings in the research are consistent with reference dependence theory — which conveys that workers have a short-term mental account and when they reach a specified reference income level workers cut back labour supply and choose to enjoy more leisure related activities.
