Investors seeking stronger returns may benefit from paying closer attention to where a company is headquartered rather than focusing solely on its growth potential, according to a new study led by researchers at Penn State. The researchers found that portfolios incorporating both company headquarters location and regional housing market conditions generated returns up to three times higher than portfolios focused only on growth stocks.

Published in the Journal of Empirical Finance, the study examined the longstanding “value-growth premium” puzzle in finance — the tendency for value stocks to outperform growth stocks over time. Value stocks generally represent mature and stable companies in sectors such as manufacturing and healthcare, while growth stocks are more commonly associated with rapidly expanding industries such as technology.

The researchers discovered that companies headquartered in expensive regions such as Silicon Valley and New York City face higher labour and infrastructure costs, leaving less money available to generate returns for investors. The findings suggest that regional housing markets may play a significant role in shaping stock performance and investment strategies.

To conduct the analysis, the researchers examined 9,308 companies listed across three major U.S. stock exchanges between 2000 and 2019. Firms were categorized using their book-to-market equity ratio, which compares a company’s assets minus liabilities with its market valuation. Companies with assets valued higher than their share price were classified as value stocks, while firms with higher market valuations relative to assets were categorized as growth stocks.

“There’s a puzzle known as the ‘value-growth premium,’ which refers to how value stocks consistently outperform growth stocks,” said Brent W. Ambrose, professor of real estate and director of the Borrelli Institute for Real Estate Studies at Penn State’s Smeal College of Business. By combining finance, real estate, and urban economics models, the team found that growth firms located in expensive housing markets experienced the weakest returns because they tend to spend more on wages and infrastructure in higher cost-of-living regions.

“Where firms locate their headquarters matters,” said Timothy T. Simin, professor of finance at Penn State’s Smeal College of Business. The researchers noted that while expensive regions can offer advantages such as proximity to innovation and skilled talent, companies and investors should recognize that these benefits may come with lower investment returns. The findings may also have implications for local governments seeking to attract firms, as housing affordability can directly influence labour costs and business competitiveness.

More information: Brent W. Ambrose et al, Firm location and the value-growth premium, Journal of Empirical Finance. DOI: 10.1016/j.jempfin.2026.101690

Journal information: Journal of Empirical Finance Provided by Penn State