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


Speaker


Abstract

This paper analyzes the relationship between employee satisfaction and long-run stock performance. A portfolio of the “100 Best Companies to Work For in America” earned an annual four-factor alpha of 4% from 1984-2005. The portfolio also outperformed industry- and characteristics-matched benchmarks, and the results are robust to the removal of outliers and other methodological changes. Returns are even more significant in the 1998-2005 sub-period, even though the list was widely publicized by Fortune magazine. These findings have three main implications. First, employee satisfaction is positively correlated with shareholder returns and need not represent excessive non-pecuniary compensation. Second, the stock market does not fully value intangibles, even when independently verified by a publicly available survey. This suggests that intangible investment generally may not be incorporated into short-term prices, underpinning managerial myopia theories. Third, certain socially responsible investing (“SRI”) screens may improve investment returns.
 
Download paper
 
Contact information:
Marie Dutordoir
Email