Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices by Alex Edmans :: SSRN

Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices

Alex Edmans

University of Pennsylvania – The Wharton School; National Bureau of Economic Research (NBER)

Journal of Financial Economics (JFE), Forthcoming

Abstract:

This paper analyzes the relationship between employee satisfaction and long-run stock returns. A value-weighted portfolio of the “100 Best Companies to Work For in America” earned an annual four-factor alpha of 3.5% from 1984-2009, and 2.1% above industry benchmarks. The results are robust to controls for firm characteristics, different weighting methodologies and the removal of outliers. The Best Companies also exhibited significantly more positive earnings surprises and announcement returns. These findings have three main implications. First, consistent with human capital-centered theories of the firm, employee satisfaction is positively correlated with shareholder returns and need not represent managerial slack. Second, Journal of Financial Economics (JFE), Forthcoming

 

Abstract:

This paper analyzes the relationship between employee satisfaction and long-run stock returns. A value-weighted portfolio of the “100 Best Companies to Work For in America” earned an annual four-factor alpha of 3.5% from 1984-2009, and 2.1% above industry benchmarks. The results are robust to controls for firm characteristics, different weighting methodologies and the removal of outliers. The Best Companies also exhibited significantly more positive earnings surprises and announcement returns. These findings have three main implications. First, consistent with human capital-centered theories of the firm, employee satisfaction is positively correlated with shareholder returns and need not represent managerial slack. Second, the stock market does not fully value intangibles, even when independently verified by a highly public survey on large firms. Third, certain socially responsible investing (“SRI”) screens may improve investment returns.

Number of Pages in PDF File: 43

Keywords: Employee satisfaction, intangibles, market efficiency, underreaction, mispricing, human capital, socially responsible investing

JEL Classifications: G14, J28, M14

Accepted Paper Series, even when independently verified by a highly public survey on large firms. Third, certain socially responsible investing (“SRI”) screens may improve investment returns.

via Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices by Alex Edmans :: SSRN.

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