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


Alex Edmans


University of Pennsylvania - Finance Department; London Business School - Institute of Finance and Accounting; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

January 20, 2010

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 Classification: G14, J28, M14

Accepted Paper Series


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Date posted: March 19, 2008 ; Last revised: December 7, 2011

Suggested Citation

Edmans, Alex, Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices (January 20, 2010). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: http://ssrn.com/abstract=985735

Contact Information

Alex Edmans (Contact Author)
University of Pennsylvania - Finance Department ( email )
The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

London Business School - Institute of Finance and Accounting ( email )
Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Feedback to SSRN (Beta)


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