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August 13, 2014

Companies that treat workers well have better stock returns

It turns out the best places to work around the world are also the best companies to invest in.

That's what new research by professors at the University of Pennsylvania's Wharton School and Warwick Business School concludes.

Investors love the companies that are named to the annual "100 Best Companies to Work For" list that's put out by Great Place to Work Institute in the U.S. and other countries around the world.

"Treating your people like assets does affect your performance," said Alex Edmans, one of the co-authors of the study.

American firms that are good to their workers beat their peers in the stock market by 2 to 3% per year, according to an earlier study. To see how those results played out in other countries, so the authors of the latest study looked at "Best Companies" around the world.

They found that the earlier study's results hold up especially well in nations where there's a lot of labor market flexibility -- meaning companies have a lot of leeway over hiring and firing.

Their study found that companies in the U.S., Britain and Canada have more flexibility, so there's a stronger link between a list appearance and stock bump.

For example, Google, and Intuit are in the top 10 companies to work for. The stocks of those three companies have all exceeded the overall stock market performance for the past year. Google is up more than 32% in the past year compared to a 15% return for the S&P 500.

In places like Germany and France, where governments have more restrictions around how employers treat workers and the processes around hiring and firing, the link was weaker.

Basically, Edmans said, the results show that it behooves firms to do right by the people that work for them.

"Doing the right thing can lead to doing well yourself," he said.

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