Employee Flexibility, Exogenous Risk, and Firm Value

We perform textual analysis of job reviews retrieved from a career intelligence website to estimate corporate culture, and find that a corporate culture of flexibility (“flex culture”) leads to excess stock returns for our sample of S&P 1500 firms. A value-weighted long-short portfolio of high and low flex culture firms generates a four-factor annualized alpha of 5.1% during 2011-2015. The abnormal returns concentrate in periods of policy uncertainty and among firms highly sensitive to systematic risk. These results are robust to industry and characteristics adjustments, and remain after controlling for culture-related variables such as organizational capital and employee morale. We also find that more flexible firms have higher gross profitability. These results suggest that a flex culture creates value to firms but investors do not fully value the culture intangible.