Edmans, Alex. "Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices." MIT Working Paper, 2007.

This strong retrospective analysis reviews the performance of the stocks of companies on the Fortune magazine "Best Companies to Work For" list, over the 1998-2005 time period. Many of the 100 companies on the list are not publicly traded, so the number of stocks in each year's portfolio ranges from 56 (2002) to 69 (1998), with a total of 95 companies studies over the full time period.

The primary finding of the study is that an equal-weighted portfolio of these companies outperforms the broader market, even after adjusting for differences in size, valuation, and momentum. Using a Carhart (four factor) model, the author finds unexplained monthly returns (alpha) of +0.52% (significant at the 1% level) for an equal-weighted portfolio of these stocks (rebalanced each February following the publication of the new list). The finding appears quite robust - portfolios constructed using slightly different construction rules (e.g., no rebalancing) had monthly alphas ranging from +0.22% to +0.43%.

The study also compares the stocks to appropriate industry benchmarks, and to companies with matched characteristics. In each case the best companies to work for had statistically significant positive alpha, ranging from +0.25% to +0.46% per year - all alphas were statistically significant at either the 1% or 5% level.

The author concludes that "employee satisfaction is positively related to corporate performance...the findings imply that the market fails to incorporate intangible assets fully into stock valuations - even if the existence of such assets is verified by a widely respected survey."

See also Kurtz and Luck (2002).