Employees of public companies tip their taxi drivers more on days when their companies do well in the stock market, according to new research from Binghamton University, State University of New York.
While the effect on tips is short-lived, research finds it’s strongest for companies that offer more stock-based compensation. These findings have implications for how employees have a local economic impact in the areas where they work.
“Employee spending is an important factor that governments consider when trying to attract businesses to their area, as it can stimulate the local economy,” said Cihan Uzmanoglu, an associate professor of finance at the Binghamton University School of Management.
Uzmanoglu analyzed payment and GPS data from about 2 million taxi rides that took place in New York City between 2009 and 2016. He focused on pickups that took place between 5 and 6 p.m. business hours) within 100 meters of New York City-based public enterprises to account for employee cab rides. Uzmanoglu then explored how a company’s stock performance impacted tips for taxis hailed near its headquarters location.
“The taxi setup is great because it’s unlikely you’ll ever run into the same taxi driver again, so how you tip now won’t influence the quality of service the next time you take a taxi,” he said. “The way someone tips a taxi driver probably says something about how he feels at the moment: does he feel happier and richer? And that’s being driven by the performance of your employer’s stock?
Uzmanoglu found that when a company experienced a positive impact on its stock performance, its employees tipped its taxi drivers more. However, this tip increase would only occur on the day of positive stock performance, meaning the effect is short-lived.
“The short-lived nature seems to suggest that the employee feels good about his company’s stock performance that day, and that happiness motivates him to tip more,” Uzmanoglu said.
Some other findings:
The effect of stock returns on tips is greater at companies that offer more stock-based compensation. The number of taxis hailed near a company’s headquarters increases with the returns on the company’s shares. Increases in tips have also occurred after a company’s initial public offering (IPO), particularly at the end of its IPO lock-up period, when employees can start selling the shares they hold in the company.
Uzmanoglu also found that tips do not drop significantly when company stocks perform poorly.
“There seems to be a socially acceptable minimum tip amount that people follow regardless of stock performance. So when you have a bad day in the stock market, I don’t see people tipping less than this socially acceptable benchmark,” he said.
Uzmanoglu conducted a series of checks to test the robustness of his findings by looking at tipping activity at different times of the day and in broader perimeters around the businesses he studied.
“The further you get from the physical locations of these businesses, as well as from the end of the business and business day, the more the effect decays. This only points to the conclusion that the increase in tipping behavior is coming from the employees of these companies,” he said.
Uzmanoglu said these findings could have broader implications for the impact businesses have on the community around them.
“Employee spending is an important economic factor for where a business is located. If the employees do well, they are likely to spend more money in that local economy,” he said. “Although I’ve just looked at taxi rides here, these findings may indicate that a company’s stock performance can influence overall discretionary spending by employees.”
The article, “Stock Market Tips” was published in the Empirical Finance Journal.
Source: news.google.com