WFH-flexible companies have higher stock returns, new study reveals

A working paper from University of Melbourne assistant professor of finance Gabriele Lattanzio found that companies ranked highly for flexible work opportunities had higher short- and long-term share prices compared to peer firms in their respective industries. Using FlexJobs’s “100 Best Companies for Remote Working Jobs” lists released between February 2014 and January 2020, Lattanzio measured both short- and long-term share price effects. The stock market had a small, but statistically significant, relationship to the release of each list, with listees’ stock lifting at a higher rate than competitors for the three, five, and seven trading days following the lists’ releases, indicating the market had a positive response to those company’s reputation for allowing flexible work. 

Looking longer term, the companies represented on the list tended to exceed the expectations of analysts or post surprise, positive earnings more than competing companies of similar sizes and industry, a factor generally associated with bigger share price climbs. The study claims to be the first documentation of a company’s reliance on flexible work being associated with long-term stock returns, taking into account outside risk factors like industry shocks.

“Some managers think—without evidence—they believe that working from home is bad for their shares, worse for their share price,” Mark Ma, an associate professor at the University of Pittsburgh who also studies the relationship between remote work and company performance, told Fortune. “But what does that data tell us?” 

The emerging research bucks the narrative advanced by CEOs like Amazon’s Andy Jassy, who have mandated workers return to the office to strengthen company culture, despite research indicating fully in-person work is not positively associated with increased individual or company performance—and that it’s leaving employees frustrated and contemplating quitting their jobs.

The next front of the RTO war

With a new wave of research able to measure quantitatively the positive financial outcomes associated with flexible work, Ma believes CEOs may loosen their grip on strict back-to-office edicts.

His own research supports Lattanzio’s early findings. Looking at the share prices of large companies following the implementation of RTO policies, Ma found that the stocks of companies like Nike and UPS, which introduced four- or five-day-a-week RTO mandates, underperformed peer companies like Adidas and FedEx following the policies’ announcements. Among nine companies with RTO mandates, seven underperformed their peers with flexible work options. Companies with five-day RTO mandates saw on average 15% lower stock returns than their flexible work counterparts.

These are just initial side-by-side comparisons that don’t control for individual company challenges, but Ma suggested that these performance differences could be because firms with strict RTO policies are losing talent to competitors, or that the introduction of mandates may throttle employee morale, causing performance to sulk. CEOs may enforce RTO mandates as a means to retake the reins of a firm struggling with profound problems, which naturally benefits competitors.

Regardless, preliminary findings could be good news for workers crossing their fingers for remote work. The numbers don’t lie, and could be more compelling to CEOs’ decision-making than employee grumblings around the office.

“Over the next one or two years, all these effects will start to show up in firms’ bottom lines, in the financial statements, and also in the stock price,” Ma said.

Some CEOs have changed their attitudes and RTO policies, with one-third of U.S. execs expecting a full return to office over the next three years compared to 62% of execs who said that remote work would end by 2026, according to a KPMG survey of U.S. CEOs. With mounting evidence that strictly in-person work doesn’t boost company performance, more companies may be willing to change their stances on remote work, Ma predicted.

“Ultimately, when the stock price shows the difference, these firms will change by hiring a new CEO,” he said. “Or the CEO will start to rethink, What did we do wrong?”