Does the stock market fully value intangibles? Employee satisfaction and equity prices

Abstract

does the stock market fully value intangibles? employee satisfaction and equity prices(cid:3) alex edmans wharton school, university of pennsylvania aedmans@wharton.upenn.edu october 17, 2007 abstract this paper analyzes the relationship between employee satisfaction and long-run stock performance. a portfolio of stocks selected by fortune magazine as the “best companies to work for in america” in january 1998 earned over double the market return by the end of 2005, and a monthly four-factor alpha of 0.64%. the portfolio also outperformed industry- and characteristics-matched benchmarks. these …ndings have two main implications. first, they suggest that employee satisfaction improves corporate performance rather than representing ine¢ ciently excessive non-pecuniary compensation. second, they imply that the stock market does not fully value intangibles, even when they are made visible by a publicly available survey. this suggests that intangible investment generally may not be incorporated into short-term prices, providing support for managerial myopia theories. keywords: employee satisfaction, market e¢ ciency, short-termism, managerial myopia, human capital jel classification: g14, j28, m14 (cid:3)2428 steinberg hall-dietrich hall, 3620 locust walk, philadelphia, pa 19104-6367. (215) 746 0498. i am grateful to henrik cronqvist, xavier gabaix, david hirshleifer, tim johnson, lloyd kurtz, stew myers, and seminar participants at mit sloan for valued input. i thank amy lyman …

Source: pdf_first_chars