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

Alex Edmans

2013 | Academic | Valuation

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. 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.