SYNOPSIS: This paper investigates the relation between the value of a firm and employee attitudes on the firm's workplace quality--workplace attitudes. Workplace attitude refers to recognition of those organizational characteristics that enhance employee work experiences and assist employees in balancing their jobs and personal lives. Using inclusion on Fortune's annual list of "The 100 Best Companies to Work for in America" as a proxy for successful efforts in creating high workplace attitudes, we compare the market values of listed firms to the market values of nonlisted firms in the same industry matched on earnings. After controlling for book value, past operational performance, and research and development expense, we find that market values of listed firms exceed those of matched firms. We also provide evidence that firms ranked high on the Fortune list receive higher market values than those ranked lower on the list. Finally, the two-year forward market returns for listed firms exceed the returns for the matched sample while the two-year prior returns are not significantly different between the two groups. This result suggests that market performance does not determine inclusion on the Fortune list.
Data Availability: Data used in this study are available from public sources.
Over the past several years, employers have increased their focus on organizational characteristics that enhance employee work experiences and assist employees in balancing their jobs and personal lives (Shellenbarger 1998). For example, companies offer employees amenities such as on-site daycare, concierge services, and flexible work schedules (Levering and Moskowitz 2000). Testimonials from companies such as Sears, MCI, EDS, and Northern Telecom indicate the same trend (see Rucci et al. 1998; Moskowitz 1997). This focus on workplace quality has become significant enough for business press publications such as Fortune and Working Mother to publish annual lists of companies that excel in creating a high quality of work life for their employees.
In order to expend resources to improve the quality of employee work life, companies must believe in the value of such investments. According to the strategic human management resource literature, such beliefs are well founded. Relying on a resource-based theory of the firm (Barney 1991), the literature posits that human resource activities can be a source of competitive advantage that produces improved financial performance (Wright et al. 2001). Evidence from studies such as Huselid (1995) and Fulmer et al. (2003) is generally consistent with this proposition. However, "systematic research on the measurement and valuation of human resources is extremely lean" (Lev 2002), and our understanding of the relation between human resources and firm performance remains limited (Becker and Huselid 2002).
This paper examines the relation between market values and employee attitudes on their company's quality of work life, called "workplace attitudes." We investigate whether companies with higher workplace attitudes have higher market values than companies with lower workplace attitudes. We also investigate whether differing degrees of workplace attitudes among those companies designated as high-quality "workplace attitude" firms are reflected in market values. Finally, we examine whether companies with higher workplace attitudes have greater market returns than companies with lower workplace attitudes.
These investigations are worthwhile for several reasons. First, empirical evidence in this area is lacking (Lev 2002). Second, no study to date examines, in a multivariate setting, the value relevance of workplace attitudes. Third, we introduce into the accounting literature a theory from the strategic human resource management literature that predicts that human resource practices provide a valuable competitive advantage for a firm. Fourth, the investigation identifies another example of unrecognized intangible assets and nonfinancial data that are useful in determining market values. …