Does the Stock Market Fully Value Alternative Working Arrangements? Work From Home and Equity Prices.

This study analyzes the relationship between corporate reliance on alternative work arrangements and long-run stock returns. We document that an equal-weighted portfolio of the “100 Best Companies for Remote Working Jobs” earned an annualized four-factor alpha of 7.44% over the period 2014 to 2019, outperforming an industry benchmark by 6.17%. Firms included in the ranking also exhibited significantly more pronounced positive earnings surprises and announcement returns. Results are robust to controlling for firm characteristics, the removal of performance outliers, and cannot be attributed to a reputational effect. Furthermore, we document that the identified outperformance is more pronounced during the SARS-CoV-2 pandemic. These findings have three major implications. First, Work From Home arrangements are beneficial to firm value through their effects on employees’ satisfaction and productivity, consistent with predictions of human capital-based theories of the firm. Second, the stock market fails at fully valuing alternative work arrangements, even when data are publicly available for a large number of publicly traded corporations. Third, reliance on more flexible working arrangements contributes to increasing corporate resilience to long-tail risk.