Are the best companies to work for the best stocks to buy?
There is quite robust academic literature that shows that companies that are rated as good companies to work for or show evidence of high employee satisfaction tend to outperform.
The chart below shows the outperformance of the companies in the Forbes Best Companies to Work for list. When faced with a result like this, we would usually ask if it was due to data mining. Did researchers try many different criteria until they found one that outperformed by chance and only published that result? Or was it due to some other confounding effect?
Tech companies with their trendy offices and free perks may tend to be voted better places to work more often than mining companies; perhaps this research is just capturing a bias towards tech outperformance that has occurred over the study period? In this case, the research seems to hold up against these potential criticisms.
Firstly, this result was first shown in 2008, updated in 2011, and subsequently in 2020. The fact that the outperformance persists post-2011 suggests that this is not just a data mining effect. Additionally, consistent results have been shown using alternative data sources to rank employee satisfaction.
Secondly, the outperformance persists even when compared to characteristic-matched and industry-matched benchmarks and is independent of standard factors such as size, value, momentum, and quality.
Source: Employee Satisfaction and Long-run Stock Returns, 1984-2020, Boustanifar and Kang
The online job review site Glassdoor has also published research showing that their list of Best Places to Work has outperformed the S&P 500 Index from 2009 to 2019.
This research suggests that company culture and employee satisfaction could be a worthwhile consideration for equity analysts and stock pickers when assessing the long-term prospects for listed companies.
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