The Number of Stock Price Jumps as Dependent Variable

Get Complete Project Material File(s) Now! »

The concept of Employee Organisational Commitment

The concept of organizational commitment has received a big attention from many researchers over the years. Porter et al (1974) had defined organization commitment as the amount of feeling and emotion the individuals have toward their organization. Reichers (1985) argued that the organizational commitment referred to the level of employees’ involvement within the organization. Kohli & Jaworski (1990) found that the committed employees are the employees that cooperate with each other to achieve organization common goals.
Between 1960 and 1982 researchers argued opposite opinion regardless organization commitment, for example, Becker (1960) found that the organizational commitment is referred to the theory of “Side-bet”, while Porter, et al, (1982) found that organizational commitment is referred to the theory of “exchange”. The theory of Becker (1960) argued that the employees stay committed to their organization because they think about the cost of leaving if they decide to leave, and he found a relationship between organizational commitment and the cost and decision to leave, which means that as the employees stay more time in the organization as the cost of leaving going to increase, as the decision to leave become more difficult for those employees.
While the theory of Porter, et al, (1982), argued that the employees stay more in the organization because they have believed in the organization mission, values, standards, and objectives, and the employees have a strong desire to do their best to achieve the goals of the organization, and they feel that they are the most important resources in the organization which lead increase the level of belonging to their organization.
Bansal, Mendelson, & Sharma (2001) had the same opinion of Porter, et al, (1982), they measured the organizational commitment according to the goals achieved by the employees, which means that if the employees are committed to their organization, they should have a desire to achieve the organization goals, mission, and objectives. While Darwish (2000) had an opposite opinion, he saw that the commitment is measured by how much the employees have accepted the changes that occur in the organization. Herold et al (2008) have the same perspective as Darwish (2000), they also argued that organizational commitment is the attitude of the employees after the changes that occur in the organization, to be more specific, they mean the level of acceptance of the change and whether the employees are open to the changes that occur in the organization from time to another. From this perspective, employee’s commitment is the most important factor that the organizations need when they want to do some changes (Meyer, 2007).
Fu and Deshpande (2013) did not have the same opinion of the above researchers, because they found that the commitment is not measured by the level of acceptance of the changes, but it measures by the level of employees’ identification in the organization. (Suparjo and Darmanto, 2015) also found that the commitment is the employees believe in the organization values. Kim (2013) gave a same definition to the organizational commitment, he defined the concept as the relationship the employees build with their organization during their stay.
Vakola and Nikolaou (2005) argued that when the individuals enter the organization they expect to have what they need and when the organization provides the individual with their needs they will be committed to the organization. Also, they defined a commitment in three dimensions, the first one is the acceptance of the organization values and standards, the second one is the desire of employees to do a best and extra effort to achieve organizational goals and the last one is the strong desire to be a member who strongly belongs to the organization. Akram, Afzal, and Ramay (2017) argued that the commitment is the attitude of the employees in the organization and it can be measured by many factors.

Stages of Organizational Commitment

Researchers argued that the organizational commitment has three stages. The reason why the employee is committed is different from one stage to another. The three stages are as follow:

Compliance stage

Compliance or exchange stage is the stage when the individual acting with the performance that complies with organization standards not because he or she believes in the organization standard and values, but because he or she gets rewards and promotion from the organization, so the commitment of the individuals in this stage is based on the number of rewards they get from the organization (Kelman, 1958).

Identification Stage

Identification stage is defined in terms of belonging to the organization in which the individual in the organization has a strong relationship with her or his organization and they are proud because they are members of this organization (Mael and Ashforth, 1992). Stinglhamber et al.(2015) have mentioned in their study that most of the scholar argued that the organization is the first and most important place in which the individuals can identify themselves, and they also found a positive relationship between organization Identification stage and affective commitment, so employees’ commitment in the identification stage is different from compliance stage because the employees in this stage have a strong desire to remain in the organization because of the level of belonging they have toward their organization.

Internalization Stage

O’Reilly and Chatman (1986) define this stage as the stage of matching between employees believe and value and their organization, they mentioned in their study that this stage is the final stage of commitment because the employees here want to stay in the organization because they share the same values with their organization.
So, as we mentioned before the stages of commitment different from one stage to another, firstly the employees want to stay because of the reward, after that, they want to stay because they feel that they have a belonging to the organization and lastly, they want to stay because they share the same values with their organization.

Three Components of Model of Commitment

The topic of organizational commitment has always been a popular topic for scholars. Since the 1980s, most scholars have been studying the theories of organizational commitment (Griffin & Bateman 1986; Morrow 1983; Mowday, Porter & Steers 1982; Reichers 1985). However, due to the lack of consensus on the study of these definitions, at the same time, it becomes more complex with the use of commitment measures (Meyer and Allen, 1991), the academic community has been waiting for a model that can serve as a framework for future research.
All of the research on the definition of organizational commitment has three similarities: affective attachment to the organization, cost perception related to leaving the organization, and obligations to stay in the organization (Meyer and Allen, 1991). First of all, most of the authors interpret the commitment as an affective orientation towards the organization. They think that this is related to the individual’s identification with the organization (Mowday et al 1979, p. 226), attitude towards the organization, and affective attachment to goals and values (Buchanan, 1974, p. 533). Second, there is a continuing commitment when commitments are linked to continued participation in profits or departure from related costs (Kanter, 1968, p. 504). Finally, some researchers believe that lifelong commitments can be interpreted as maintaining ethical loyalty and commitment to the organization (Marsh and Mannari, 1977, p. 59).
The above three common points about the definition of organizational commitment can be interpreted as Affective, continuous and normative commitment (Meyer and Allen, 1991). These three commitments all express a psychological state, also have an impact on the relationship between employees and organizations and the retention of organizational members (Meyer and Allen, 1991).

Affective Commitment

As early as 1982, Monday et al. (1982) discovered that affective commitment includes four categories: personal characteristics, structural characteristics, job-related characteristics, and work experience. First, from the perspective of personal characteristics, employees are willing to make promises for many reasons, such as personal professional ethics (Buchanan 1974; Kidron 1978), personal responsibilities (Griffin & Bateman 1986; Mowday et al. 1982), and personal to work Interests etc. (Dubin, Champoux, & Porter 1975). All of these can be used to prove that employees are different in their willingness to make promises (Griffin & Bateman 1986; Mowday et al. 1982). In addition, environmental factors have also contributed to individual commitments (Meyer and Allen, 1991). The better the personal traits blend with the environment, the more active the response will be (Hackman & Oldham 1976: Hulin & Blood 1968), and vice versa.
Second, the structural characteristics are also related to employee commitment (Meyer and Allen, 1991). Although most researchers less directly examine the relationship between organizational structure and individual commitment (Glisson & Duric 1988), the relationship 15 between organizational structure and personal commitment is indirect (Podsakoff et al. 1986). The relationship between employee and subjective, the clarity of the role of employees in the organization are related to the organizational structure (Meyer and Allen, 1991), so the organizational structure can indirectly affect the employee’s feelings, thus affecting employees’ affective commitment.
Third, job-related characteristics are also one of the factors that affect individual commitment (Meyer and Allen, 1991; Joiner and Bakalis, 2006). Support from supervisors, support from colleagues, and access to resources are job-related features that affect individual commitment (Joiner and Bakalis, 2006). Research shows that employee commitment is strongly influenced by the organizational support and that employees are more likely to return to supporting organizations in accordance with effective commitments (Eisenberger et al., 1986). Similarly, the friendly relationship with colleagues has the same impact on employees’ effective commitments, which can make employees has a strong effective commitment (Mottaz, 1988).
Resources are very important job-related features for employees (Joiner and Bakalis, 2006). Access to resources can influence whether employees give an effective commitment to the organization (Angle and Perry, 1983). Job-related resources include office space, photocopying facilities, administrative support, and computer use (Joiner and Bakalis, 2006). Access to resources can make it easier for employees to complete work and improve employee self-efficacy (Spreitzer, 1996).
Finally, compared with individual and organizational characteristics, the gap between research on work experience and effective commitment is very large (Meyer and Allen, 1991). There are roughly two types of work experience that affect effective commitment, namely the satisfaction of employees’ psychological and physical comfort requirements (Blau 1988, Meyer & Allen 1987, 1988; Lee 1971; Ogilvie 1986; Rhodes & Steers 1981) and work competitiveness of employees (Angle & Perry 1983; Buchanan 1974; Meyer & Allen 1987, 1988).

Continuance Commitment

Continuance commitments are the requirements of individuals for the continuous work of the organization (Allen and Meyer, 1991), such commitments are generally based on benefits. Continuance commitment to the reaction is the individual’s perception of the costs of leaving 16 the organization, and anything that can increase costs can be seen as a prerequisite for continuance commitment (ibid.). The longer the individual works in the organization, the more benefits are gained, and the greater the convenience of individuals in accessing resources (ibid.). This means that the longer the work is done in the organization, the more benefits it will receive, the more specific skills will be acquired, and the formation of personal relationships and a high degree of seniority in the organization (ibid.). When employees leave their jobs, they lose everything they already have and they continue to work for the organization in order to keep their existing resources (ibid.).
According to Baker (1960), continuance commitment is influenced by age and length of service (Aranya & Jacobson 1975; Ferris & Aranya 1983; Parasuraman & Alutto 1984; Stevens et al. 1978). Younger employees are more likely to leave the organization during working in the organization, because they have less work experience, and the cost of leaving the organization is lower than for older employees with extensive work experience (Meyer & Allen, 1984). In addition, the continuance commitment is also affected by the number or size of the organization’s investments (Farrell & Rusbult, 1981). When organizations increase the number or size of investments, the attractiveness of other alternatives to the market will decline, the organization’s attractiveness to employees will increase, and employee commitment will increase (Meyer and Allen, 1991). Finally, job satisfaction has also become a factor that affects employees’ continuance commitment (ibid.). When employees are more satisfied with their work, it means that the higher the employee’s departure cost, the employee will give a continuance commitment and continue to work in the organization.

READ Relationship between short-term capital inflows and economic vulnerability

Normative Commitment

Factors that affect organizational commitment based on several commitment types

A number of researchers have talked about how important commitment is towards organizational performances. Meyer and Allen (1997) believe that the stronger correlation between organizational commitment and job performance exists in the individual performance of employees. Take salespersons as an example, there is a strong positive correlation between personal performance and organizational commitment of employees (Dubinsky and Hartley, 1986; Skinner, 2000). So, accepted towards organization plays a vital role to enhance the integrity and effective performance (Comte-Sponville, 2001; Chapman & Galston, 1992).
Hersey and Blanchard (2005) have discussed several factors that affect organizational commitment based on the commitment towards the job, people, own self, organisation and stakeholder. Those are argued by scholars as follow:

Commitment towards job

According to Meyer and Allen (1991), there is less research on normative commitment, and there are more theoretical developments than empirical. The normative commitment is the connection between individuals and organizations (Bergman, 2006), Wiener (1982) believes that the premise of normative commitment is that the organization is willing to provide incentives for employees. Employees are subject to regulatory pressure imposed by society before they enter an organization or join an organization. When employees believe that they can be rewarded by following social norms (Meyer and Allen, 1991), employees will be willing to make normative commitments. In the 1980s, the normative commitment was considered as an obligation to stay in the organization (Wiener, 1982). after two decades, some scholars now believe that normative commitment implies that employees and organizations are mutually beneficial (Meyer et al., 2002).
Employee satisfaction is an employee’s evaluation of work and has always been an important issue for the organization (Bhatti & Qureshi, 2007). Peng et al. (2014) defined it as employee’s feeling toward his or her job. However, few organizations have made employees’ job satisfaction as a top priority (Bhatti & Qureshi, 2007). Organizations have not yet realized that employees are more inclined to choose a more productive and creative employer. So when employees think that employers can be satisfied with themselves and get happiness from work, employees are willing to make a commitment.
Moreover, according to Mosadeghrad, Ferlie and Rosenberg (2008) job satisfaction, organizational commitment and turnover ratio are connected to each other. They argued that employees who satisfy with their job are more productive and have a desire to stay more in the organization, which affect the turnover ratio, on the other hand, the employees who do not feel satisfied in their job have a huge intention to leave.

Commitment towards people

Many aspects of employees’ interpersonal contact and co-workers are positive, which indicates that the employees’ personal and environmental factors are in a positive state (Leiter and Maslach, 1988), and they will be willing to make a commitment to the organization. Such a commitment is a commitment to people.
Some of the personal factors that affect the commitment level are the gender of the employee, their age and their education level. Al-Ajmi (2006) made a study on 436 employees in five organization to test if there is a difference between males and females commitment in the workplace, but the result showed that there is no difference between the level of commitment based on the gender, while the result of Khalili and Asmawi (2012) showed that the difference in commitment between males and females is based only on normative commitment, they found that females have more normative commitment than males. The ages of the employees are also one of the main personal factor that affects the commitment, Finegold, Mohrman, and M. Spreitzer (2002) examined a study to explore the relation between the age of the employees and their commitment, their study has involved 3000 employees from six big companies, they found that the desire to stay in the organization for employees between the ages 31-45 and over 45 are more than those under the age of 30.
While the effect of education level on organizational commitment has received different views, Manríquez, Ramírez, and Guerra (2010) argued that as the education level of employees increases as their commitment decrease, they examined the degree of commitment 19 for employees who have a low education level, and they found that those employees stay more in the organization. Moreover, the environmental factors also have an impact on organizational commitment. The first environmental factor is communication. According to (Leiter and Maslach, 1988), excessive interpersonal communication makes the employee’s emotion change, causes excessive emotional expansion and loss, and eventually leads to the decrease of personal accomplishment and the decline of job burnout.
Most studies show that environmental factors are the direct cause of job burnout (Leiter and Maslach, 1988). Contact with others, regardless of colleagues or customers, can lead to changes in mood. Excessive exposure is the main cause of problems, frustrations, and even conflicts (Leiter and Maslach, 1988), and this negative emotional change is the main factor in job burnout. In such negative mood changes, employees are reluctant to make a commitment to continuing work, and they even want to escape the working environment of negative emotional sources even more quickly.
On the contrary, perception and attitude are very important to individuals (Cable and DeRue, 2002). The quality of communication can affect organizational commitment. Allen (1992) found that in organizations involved in total quality management, communication strengthened organizational commitment with a difference of 59%. Good communication enables employees to get job-related information and the task-related information (De Ridder, 2004) which increase their level of engagement in the organization, which has a positive impact on affective, continuance and normative commitment (I. Altarawneh,2014).

Table of contents :

1. INTRODUCTION
1.1 Problem Background
1.2. Problem Discussion
1.3 Research Purpose and Research Questions
1.4 Delimitations
2. SCIENTIFIC METHOD
2.1 Choice of the Subject
2.2 Preconceptions
2.3 Ontology
2.4 Epistemology
2.5 Research Approach
2.6 Research Design
2.7 Ethics in Business Research
2.8 Literature Search
3. THEORETICAL FRAMEWORK
3.1 Portfolio Choice
3.2 Financial Risks
3.3 Efficient Market Hypothesis
3.3.1 Weak-form Hypothesis
3.3.2 Semi Strong-form Hypothesis
3.3.3 Strong-form Hypothesis
3.3.4 Critics of the EMH
3.3.5 The Adaptive Market Hypothesis
3.3.6 Implications of the EMH and Adaptive Market Hypothesis Theory
3.4 ESG Performance and ESG Rating
3.4.1 The Environmental Factor
3.4.2 The Social factor
3.4.3 The Governance factor
3.5 ESG and Stock Price Jumps
3.6 Hypotheses
4. LITERATURE REVIEW
4.1 Empirical Studies on ESG and Firm Performance
4.2 Empirical Studies on ESG and Risk Relationships
4.3 Empirical Studies on ESG and Biases
4.4 Summary of Previous Research
4.4.1 Empirical Studies on ESG and Firm Performance
4.4.2 Empirical Studies on ESG and Risk Relationships
4.4.3 Empirical Studies on ESG and Biases
4.5 Connecting Previous Studies
5. RESEARCH METHOD
5.1 Population and Sample
5.2 The Number of Stock Price Jumps as Dependent Variable
5.3 Independent Variables
5.3.1 ESG Score
5.3.2 Beta
5.3.3 Return on Assets
5.3.4 Debt to equity ratio
5.3.5 Earning per share
5.3.6 Volume
5.3.7 Market Capitalization
5.3.8 Total Debt
5.4 Data Collection
5.5 Regression Model
6. EMPIRICAL RESULTS
6.1 Descriptive Statistics
6.1.1 ESG Score
6.1.2 Descriptive Statistics for Dependent Variables
6.1.3 Correlation Matrix
6.2 Regression Results
6.2.1 ESG Score and Stock Price Jumps
6.2.2 ESG Combined Score and Stock Price Jumps
6.2.3 Environmental Score and Stock Price Jumps
6.2.4 Social Score and Stock Price Jumps
6.2.5 Governance Score and Stock Price Jumps
6.2.6 Hypothesis Testing Results
7. ANALYSIS
7.1 Empirical Results Discussion
7.1.1 Discussion on the ESG Score Results
7.1.2 Discussion on ESG Combined Score Results
7.1.3 Discussion on Environmental, Social and Governance Scores Result
7.2 Discussion Alongside the Previous Studies
7.3 Analysis of the Results Based on the Included Theories
7.4 Discussion Surrounding the Research Results over Studied Countries
7.5 Discussion Surrounding the Counteracting Effect in Study Results
8. CONCLUSIONS AND RECOMMENDATIONS
8.1 Conclusions
8.2 Societal and Ethical Implications of the Research
8.3 Theoretical and Practical Contribution
8.4 Limitations and Suggestions
9. TRUTH CRITERIA
9.1 Validity
9.2 Reliability
9.3 Generalizability
REFERENCES
APPENDICES
Appendix 1. List of the Companies Used in Study
Appendix 2. Correlation Matrix
Appendix 3. Regression Model Results over the Nordic Region Countries