Undervaluation of Employee Satisfaction
Posted: 27 Jul 2020 Last revised: 24 Aug 2020
Date Written: July 1, 2020
The prior literature has shown that firms in the list of 100 Best Companies to Work for in America (hereafter BC) earn positive abnormal returns in the period after the list is published in Fortune magazine. In this paper, we assess to what extent the prior performance of stocks is related to this anomaly. We find that these abnormal returns are indeed confined to a subset of BC that have performed poorly over the previous two years. Specifically, over the sample period 1998-2017, a value-weighted portfolio of loser BC earns an annualized three-factor alpha of 12.65% in the subsequent year, while the same figure for other BC is an insignificant 1.11%. Our findings are consistent with the view that mispricing forms over time and support the hypothesis that undervaluing human capital plays a vital role in the BC anomaly.
Keywords: Stock Market Returns, Market Anomalies, Employee Satisfaction, Intangibles, Socially Responsible Investment
JEL Classification: G30, G12, G11
Suggested Citation: Suggested Citation