Companies in happy cities invest more for the long term

New research suggests that happiness might influence how firms work

Happy people work differently. They’re more productive, more creative and willing to take greater risks. And new research suggests that happiness might influence how firms work, too.

Companies located in places with happier people invest more, according to a recent paper by Tuugi Chuluun of Loyola University Maryland and Carol Graham of the Brookings Institution. In particular, firms in happy places spend more on research and development (R&D). That’s because happiness, they argue, is linked to the kind of longer-term thinking necessary for making investments for the future.

Chuluun and Graham wanted to know if the optimism and proclivity for risk-taking that come with happiness would change the way that companies invested. So they compared U.S. cities’ average happiness, as measured by Gallup polling, with the investment activity of publicly traded firms in those areas. (Gallup asks respondents to evaluate their lives from zero to 10, with 10 representing the “best possible life.”)

Sure enough, firms’ investment and R&D intensity were correlated with the happiness of the area in which they were headquartered. But is it really happiness that’s linked to investment, or could something else about happier cities explain why firms there spend more on R&D? To find out, the researchers controlled for various factors that might make firms more likely to invest – like size, industry and sales – and for indicators that a place was desirable to live in, like growth in wages or population.

The link between happiness and investment generally held.

The correlation between happiness and investment was stronger in places where happiness was spread more equally. Firms seem to invest more in places where most people are relatively happy, rather than in places with happiness “inequality, or large gaps in the distribution of well-being.”

While this doesn’t prove that happiness causes firms to invest more or to take a longer-term view, the authors believe it at least hints at that possibility. It’s not hard to imagine that local culture and sentiment would help shape how executives think about the future. But while much of the focus on workplace happiness concerns engagement of front-line workers, the link to investment is a signal that broader satisfaction matters too. At a time when companies are plagued by short-term thinking and are sitting on cash, happiness could be a missing part of the puzzle.

It’s easy to imagine how corporate short-termism and unhappiness reinforce each other. Less optimistic, future-oriented or happy places may deter investment. And lack of investment in turn gives people less reason to feel optimistic about the future.

The good news is that, while Javidan’s work found that societies varied in how focused they were on the future, most cultures agreed that people should care more about the long-term. For now, though, when it comes to resisting short-term thinking, companies in happier, more future-oriented places may have a leg up.

(Walter Frick is a senior associate editor at HBR.)

© 2015 Harvard Business School Publishing Corp. Distributed by The New York Times Syndicate