Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices
London Business School - Institute of Finance and Accounting; University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)
January 20, 2010
Journal of Financial Economics 101(3), 621-640, September 2011
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
Date posted: March 19, 2008 ; Last revised: December 19, 2013
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