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A Great Manager Can Be a Team’s Greatest Asset

A new international study published in The Quarterly Journal of Economics suggests that a good manager can be just as important to a company’s performance as the combined productive capacity of its employees. The research also found that those most eager to become managers are not always the best suited for the role.

Previous studies have shown that effective leadership can improve organisational performance by motivating employees, monitoring work, and allocating tasks efficiently. However, measuring a manager’s true impact has been challenging because managers are rarely assigned to teams at random in real-world settings.

To address this issue, researchers developed an innovative method to isolate the manager’s contribution to team performance. In an international laboratory experiment, managers were randomly assigned to multiple teams while researchers controlled for the skill levels of team members.

This approach allowed the researchers to separate leadership ability from both the manager’s own productivity and the abilities of the employees. Teams completed a range of problem-solving tasks under different managers, providing a clearer picture of leadership effectiveness.

The findings revealed that a manager’s overall leadership ability was roughly as important to team performance as the total productive capacity of the employees. The study also found that managerial success was more strongly linked to job-related decision-making skills than to personality traits such as charisma or self-confidence.

A related field study conducted at a large retail chain produced similar results. When manager quality improved from average to good, annual sales increased by 25 per cent, highlighting the significant impact that effective leadership can have on organisational outcomes.

The researchers also found that individuals who expressed the strongest interest in becoming managers did not necessarily perform best in the role. In addition, women were less likely than men to seek managerial positions, despite performing equally well when randomly assigned to them. The findings support the use of more structured, competency-based approaches to selecting and promoting managers.

More information: Ben Weidmann et al, How Do You Identify a Good Manager? The Quarterly Journal of Economics. DOI: 10.1093/qje/qjag004

Journal information: The Quarterly Journal of Economics Provided by University of Gothenburg

New Study Reveals Political and Global Drivers Behind EV Transition in Brazil and Mexico

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The transition to electric vehicles (EVs) in Brazil and Mexico has been shaped as much by domestic politics and global economic pressures as by environmental concerns, according to a new study by Renato H. de Gaspi of Johns Hopkins University and Pedro Perfeito da Silva of the University of Exeter. The researchers argue that decisions in both countries have been influenced by factors extending beyond emissions reduction, costs, and technological efficiency.

Although Brazil and Mexico face similar global pressures and structural constraints, they have followed markedly different paths toward transportation decarbonization. The study finds that national political coalitions, industrial structures, and relationships with foreign investors have played a central role in determining each country’s technological strategy.

In Brazil, EV development has been supported by a large domestic market, a strong bioethanol industry, and political alliances linking rural and urban interests. Growth in commodity exports has strengthened the position of domestically owned sectors, while robust consumer demand has attracted foreign investment and provided manufacturers with a substantial internal market.

These conditions have given the Brazilian government greater bargaining power with multinational automakers, which dominate vehicle production throughout the region. As a result, Brazil has favoured decarbonization strategies that align with domestic priorities, particularly hybrid vehicles compatible with the country’s extensive ethanol infrastructure and existing flex-fuel fleet.

Mexico’s experience has been different. Its automotive industry is heavily export-oriented, with about 87 per cent of light vehicle production destined for foreign markets. This dependence on external markets and foreign technology has limited policymakers’ ability to shape industrial development and has tied the country’s EV strategy closely to integration with North American supply chains.

According to Dr Perfeito da Silva, Mexico has rapidly expanded battery electric vehicle assembly and battery production while seeking to increase local content and reduce technological dependence. However, these efforts remain constrained by the country’s export-led development model and its reliance on access to US and Canadian markets.

The study notes that rising protectionist pressures, including tariff threats and uncertainty surrounding key provisions of the US Inflation Reduction Act, have exposed vulnerabilities in Mexico’s approach. While Brazil has pursued a domestically adapted hybrid-ethanol pathway, Mexico faces growing pressure to take a more active role in industrial policymaking as the external environment becomes less stable and predictable.

More information: Renato H. de Gaspi et al, The Politics of Technological Choice in the EV Transition: Comparing Brazil and Mexico, Politics and Governance. DOI: 10.17645/pag.11240

Journal information: Politics and Governance Provided by University of Exeter

Rapid Shipping Takes a Toll on E-Commerce Warehouse Workers

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Holding off on a late-night online purchase may do more than save money—it could help reduce pressure on warehouse workers. New research led by Cornell University found that consumers’ demand for inexpensive products delivered quickly contributes to harsher working conditions in e-commerce fulfilment centres compared with traditional warehouses.

The study, published in the ILR Review, provides one of the first comprehensive assessments of warehouse work in the United States. Researchers found that the growing emphasis on convenience, speed, and low prices has significantly reduced job quality for many workers who process online orders.

According to lead author Alexander Kowalski, Assistant Professor of Human Resource Studies at Cornell University, e-commerce intensifies competition among retailers to meet customer expectations, often at the expense of employee well-being. He noted that this trend affects a large and expanding segment of the labour market, but it is not unavoidable.

Researchers surveyed approximately 400 warehouse employees across the United States. Workers in business-to-consumer (B2C) facilities, which primarily fulfil online orders, reported greater pressure to work quickly, fewer opportunities for breaks, higher exposure to unsafe conditions and poorer overall well-being than employees in traditional business-to-business (B2B) warehouses. Despite these challenges, they did not receive higher wages.

To explore differences among employers, the research team surveyed more than 1,400 Amazon warehouse workers and 450 Walmart warehouse workers. The results showed that Amazon employees reported more intense workloads, lower wages, greater unfairness, more safety concerns and higher levels of stress and injury than their Walmart counterparts.

The findings suggest that Amazon’s focus on rapid delivery places greater demands on workers than Walmart’s emphasis on low prices. While job quality was not high in either company, Amazon’s e-commerce fulfilment centres were associated with the least desirable working conditions.

The researchers stressed that poor job quality is not an inevitable consequence of e-commerce. The contrast between Amazon and Walmart demonstrates that different business strategies can produce different outcomes for workers. They argue that improving conditions will require a combination of worker advocacy, public policy, consumer awareness and corporate commitment to balancing efficiency with employee well-being.

More information: Alexander Kowalski et al, At the Mercy of the Market? E-Commerce, Warehouse Work, and Job Quality in the United States, ILR Review. DOI: 10.1177/00197939261444716

Journal information: ILR Review Provided by Cornell University

Research Highlights Environmental Consequences of Growth Driven by Multinational Companies

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Multinational companies can boost local economies but often come with higher environmental costs than domestic firms, according to new research by Dr. Frederik Noack, associate professor in the Faculty of Land and Food Systems at the University of British Columbia, published in the journal Nature Climate Change. Drawing on data from across Africa, the study found that multinational activity is associated with greater deforestation and biodiversity loss, even as it contributes to economic growth.

The research addresses a long-standing debate about the role of multinational firms in developing economies. While these companies are often credited with bringing investment, employment opportunities and new technologies, critics have argued that they may relocate environmentally harmful activities to countries with weaker environmental regulations. A key challenge has been determining whether multinational firms directly cause environmental degradation or operate in areas where such impacts are already occurring.

To isolate the effect of multinational activity, the researchers tracked firms through their global networks. They examined how changes affecting company headquarters, such as shifts in access to credit, influenced expansion abroad. Because these changes were unrelated to local environmental conditions, they provided a unique opportunity to identify the environmental consequences of increased multinational activity while controlling for other factors.

The findings reveal a clear relationship between multinational expansion and environmental degradation. Using data that linked millions of firms to satellite measurements of forest cover and land use across Africa, the study found that areas experiencing greater multinational activity saw approximately 24 per cent more deforestation and notable declines in forest cover. The researchers also observed a 0.6 per cent reduction in crop diversity, an important indicator of biodiversity and food security. These environmental impacts persisted over time rather than disappearing after initial development.

At the same time, multinational firms generated measurable economic benefits. Each new multinational affiliate was associated with an increase in local GDP of roughly 0.3 per cent, equivalent to about $106 million. However, the environmental costs were substantial. The average forest loss linked to an additional affiliate amounted to approximately 10,200 hectares. When carbon emissions and related damages were considered, the estimated environmental cost reached about $693 million—several times greater than the economic gains.

The study also found that multinational firms have a significantly larger environmental footprint than domestic firms, even after accounting for differences in size and activity. This is partly because multinational companies are more heavily concentrated in sectors such as mining, large-scale agriculture and manufacturing, which have substantial impacts on land use and ecosystems. The findings suggest that environmental regulations play an important role in shaping these outcomes. Stronger regulations were associated with lower environmental impacts, while weaker rules were linked to greater damage. Although the study focused on Africa, the researchers note that the underlying dynamics apply more broadly. The results indicate that attracting investment and protecting the environment are not mutually exclusive goals, but achieving both depends on the design and enforcement of effective environmental policies.

More information: Frederik Noack et al, The environmental impact of multinational firms in Africa, Nature Climate Change. DOI: 10.1038/s41558-026-02637-6

Journal information: Nature Climate Change Provided by University of British Columbia

Can AI Write Finance Papers as Well as Humans? Evidence Suggests Yes

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Artificial intelligence (AI) and large language models (LLMs) can mass-produce academic finance papers that are nearly indistinguishable from human-authored research, according to a new study published in the Journal of Economic Literature. Researchers Mihail Velikov of Penn State and Robert Novy-Marx of the University of Rochester developed an automated pipeline capable of generating hundreds of publication-ready finance papers in a matter of hours.

The project originated from a data-mining exercise examining corporate accounting data for signals that could predict stock performance. After identifying more than 30,000 potential signals and comparing them against 200 previously documented anomalies in the finance literature, the researchers narrowed the list to 95 genuinely novel signals.

Velikov created a website that automatically generated template reports describing each anomaly. While the reports resembled academic papers, they lacked theoretical explanations. Recognising the growing capabilities of LLMs, the researchers turned to AI to generate hypotheses and narratives explaining why the anomalies might exist.

Using Anthropic’s Claude Opus model, the researchers instructed the AI to assign descriptive names to the predictors and produce four distinct manuscripts for each signal, each offering a different theoretical explanation. In total, the system generated 380 complete papers, including abstracts, introductions, methods, results, conclusions and citations. The papers and code were subsequently made publicly available.

The study highlights both opportunities and challenges for academic research. As AI dramatically lowers the cost and time required to produce scholarly manuscripts, it could further increase submissions to journals and conferences, placing additional strain on an already burdened peer-review system. Velikov argues that research evaluation and dissemination practices will need to adapt to the growing role of AI-generated scholarship.

The researchers also raise concerns about “HARKing” — hypothesising after results are known. In the AI-generated papers, hypotheses were created only after patterns had already been identified in the data, raising questions about scientific contribution, research integrity and the role of theory in knowledge creation. Although Velikov does not believe AI will replace researchers, he expects it to fundamentally transform how research is conducted, evaluated and communicated across finance and many other academic disciplines.

More information: Robert Novy-Marx et al, Artificial Intelligence–Powered (Finance) Scholarship, Journal of Economic Literature. DOI: 10.1257/jel.20251821

Journal information: Journal of Economic Literature Provided by Penn State

What Retail Purchasing Patterns Reveal About Menstrual Pain and Period Poverty in England

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More than one in four women purchasing menstrual products also bought pain relief in the same transaction, according to a new study led by Dr. Victoria Sivill of the University of Bristol and published in the journal PLOS Digital Health. The findings suggest that menstrual pain is a widespread concern and reveal important socioeconomic differences in access to pain relief.

Menstrual pain affects many individuals worldwide and can disrupt everyday activities, including attendance at school and work. Despite its prevalence, population-level data on menstrual pain and access to treatment remain limited.

To address this gap, researchers analysed anonymised loyalty card data from a major UK health and beauty retailer. The dataset included 211 million transactions made by 3.4 million customers across England between 2006 and 2015.

The study found that 26.7% of customers purchasing menstrual products also bought pain relief at the same time. Shoppers were nearly four times more likely to purchase pain relief during a menstrual product purchase than during other shopping trips. Supporting the validity of the approach, the most common interval between repeat menstrual product purchases was 28 days, matching the average menstrual cycle length.

Income-related differences were particularly striking. Customers living in the lowest-income areas were 32% less likely to purchase pain relief alongside menstrual products than those living in the highest-income areas. The researchers suggest that this disparity is more likely to reflect financial barriers to purchasing over-the-counter medications than differences in the prevalence of menstrual pain.

The authors say the findings highlight the need for greater awareness of menstrual pain and policies that address its socioeconomic dimensions. They argue that improving access to menstrual pain relief should be considered an important component of broader public health efforts aimed at reducing health inequities.

More information: Victoria Sivill et al, What can shopping transactional data reveal about relative prevalence of menstrual pain and period poverty in England? PLOS Digital Health. DOI: 10.1371/journal.pdig.0001308

Journal information: PLOS Digital Health Provided by PLOS

How Farmers Navigate Climate Uncertainty

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As climate change increases the frequency of droughts, excessive rainfall, and other extreme weather events, farmers face growing uncertainty about crop production. Understanding how they perceive and respond to this uncertainty can help inform agricultural policy and climate adaptation strategies. A new study from the University of Illinois Urbana-Champaign and Michigan State University explored farmers’ risk preferences in the context of climate-related challenges.

Lead author Natalie Loduca, clinical assistant professor in the Department of Agricultural and Consumer Economics at the University of Illinois, said the study sought to understand better how farmers perceive uncertainty under changing climate conditions. Because crop yields depend on both weather and management decisions, understanding risk attitudes is essential for designing effective adaptation measures.

The researchers surveyed Michigan crop producers, focusing on corn and soybean farmers operating at least 300 acres and relying on farming as a major source of income. Participants completed a series of choice experiments commonly used in economics to measure risk aversion, selecting between options with varying levels of uncertainty and potential returns.

Farmers first evaluated monetary lotteries that contrasted high-risk/high-reward outcomes with lower-risk/lower-reward alternatives. They then considered agricultural scenarios involving management decisions such as investing in drainage systems, irrigation, drought-tolerant seeds, or crop insurance. These options were presented as ways to reduce revenue losses from weather-related events affecting a 40-acre corn field.

The study found that farmers were generally risk-averse in both financial and agricultural contexts. However, attitudes toward uncertainty varied much more widely in the farming scenarios than in the general monetary lotteries, suggesting that a diverse range of perceptions and preferences influences climate-related decision-making.

The findings have important implications for policymakers. More risk-averse farmers may be more inclined to adopt technologies and practices that reduce climate-related yield risks, while farmers with a higher tolerance for risk may respond differently. The researchers are now examining how risk preferences influence actual investment and adaptation decisions, with the goal of better understanding what drives farmers’ responses to a changing climate.

More information: Natalie Loduca et al, Farmer risk preferences: Does context matter? Journal of the Agricultural and Applied Economics Association. DOI: 10.1002/jaa2.70038

Journal information: Journal of the Agricultural and Applied Economics Association Provided by University of Illinois College of Agricultural, Consumer and Environmental Sciences

Researchers Discover Ancient City Prospered During Period of Greater Equality

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New research from the University of York suggests that the 4,000-year-old city of Mohenjo-daro became more equal as it grew more prosperous, challenging long-held assumptions about the rise of early cities. Historians have often argued that as villages developed into urban centres, wealth and power became concentrated among kings, priests, and ruling elites, widening the gap between rich and poor.

However, a new study examining the archaeology of Mohenjo-daro, the largest city of the Indus Valley Civilization, found evidence of the opposite trend. By analysing house sizes throughout the city, researchers discovered that Mohenjo-daro was more egalitarian than neighbouring societies in Mesopotamia and ancient Greece, and became increasingly equal over time.

Lead author Dr Adam Green said legacy data from the city revealed that the gap between the largest and smallest homes narrowed as the city matured. By its later years, levels of inequality had fallen to those typically associated with early farming villages. Unlike ancient Egypt or Greece, where monumental palaces, pyramids, and elite tombs symbolised concentrated wealth and power, Mohenjo-daro invested in practical infrastructure such as organised streets and sophisticated drainage systems.

Researchers also highlighted the widespread distribution of the civilisation’s famous Indus seals, which were used in trade and administration. Rather than being concentrated in palaces or public buildings, the seals were commonly found in ordinary households, suggesting that economic and administrative tools were broadly shared across society. The absence of royal palaces or statues of rulers further points to a society without a dominant ruling elite.

The study suggests that the city’s inhabitants worked collectively to maintain a relatively equal standard of living. Investments in drainage, street maintenance, and a standardised system of weights and measures reflected a commitment to public welfare and fair exchange. Researchers argue that this collective approach may have helped sustain both productivity and social stability over centuries.

Published in the journal Antiquity, the findings challenge the assumption that economic growth inevitably leads to rising inequality. Dr Green said the Indus civilisation demonstrates that urban societies can remain highly productive, technologically advanced, and innovative while also distributing resources and power more equitably. He added that maintaining lower levels of inequality may even have been essential to sustaining long-term prosperity.

More information: Adam Green et al, Inequality declined in the Bronze Age city of Mohenjo-daro, Antiquity. DOI: 10.15184/aqy.2026.10359

Journal information: Antiquity Provided by University of York

Disability-Inclusive Campaigns Drive Stronger Brand Affinity, According to New Research

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Adverts featuring people with disabilities can significantly improve consumer attitudes towards brands and their products, according to new research co-authored by Bayes Business School. The study also highlights the effectiveness of diversity regulations and shows that compliance-driven inclusion can generate the same positive outcomes as voluntary efforts. Although one in seven people worldwide lives with a visible or invisible disability, people with disabilities continue to be substantially underrepresented in advertising.

The research, co-authored by Zachary Estes alongside academics from the University of Amsterdam and Bocconi University, examined advertisements across a variety of products, services, and disability types in both hypothetical and real-world settings. Six studies involving more than 2,000 participants found that consumers consistently responded more positively to brands whose adverts included people with disabilities.

Researchers found that favourable consumer reactions occurred in both public and anonymous settings, indicating that the effect was not driven simply by social signalling. The positive impact of disability inclusion also extended beyond consumer goods to more formal sectors such as financial services. Rather than making brands appear warmer or trendier, disability inclusion primarily strengthened perceptions of inclusivity.

The studies further showed that brands benefited from disability-inclusive advertising regardless of whether representation was voluntary or required by regulation. In one experiment, participants were given differing explanations about why a fictional restaurant included a man using a wheelchair in its advert. Perceptions of inclusivity remained similarly positive whether the inclusion resulted from genuine initiative or regulatory compliance, suggesting that mandatory diversity requirements can still produce meaningful commercial and social benefits.

At the same time, the research identified important factors that can weaken or erase the positive effects of disability inclusion. Advertisements portraying people with disabilities as vulnerable rather than socially integrated were viewed less favourably. Likewise, explicitly drawing attention to a person’s disability within an advert reduced positive reactions. In one study involving autism as an example of an invisible disability, direct mention of the disability eliminated the inclusion advantage.

Participants in earlier studies also demonstrated stronger preferences for brands featuring people with disabilities in adverts for products such as shower gels and energy drinks, even when making private choices without social pressure. Later studies expanded the analysis by providing participants with additional information about brands’ motivations for inclusive advertising and by testing reactions to both visible and invisible disabilities.

The authors concluded that concerns among marketing managers about alienating mainstream consumers or appearing tokenistic are largely unsupported by evidence. More than 80 per cent of participants across the studies responded positively to disability inclusion in advertising. The researchers argue that inclusive campaigns are most effective when they portray people with disabilities as confident and capable participants in everyday life, rather than as vulnerable figures. The study, titled Beyond Visibility: The Disability Inclusion Effect in Advertising, was published in the Journal of Marketing.

More information: Martina Cossu et al, Beyond Visibility: The Disability Inclusion Effect in Advertising, Journal of Marketing. DOI: 10.1177/00222429261447790

Journal information: Journal of Marketing Provided by City St George’s, University of London

AI Detects the Market Signals That Matter Most

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Building an efficient portfolio starts with a deceptively simple question: how do assets move together? In real markets, however, these relationships are never observed cleanly because genuine collective movements are mixed with sampling noise. Even small errors in this risk map can lead to unstable portfolio allocations.

In a study published in The Journal of Finance and Data Science, researchers from CentraleSupélec, University of Catania and University of Palermo developed a neural-network approach that learns how to clean these co-movement patterns before portfolios are constructed. Rather than replacing portfolio theory, the method integrates AI into a transparent allocation framework.

The study focuses on global minimum-variance portfolios designed to control risk. The neural network is trained on the realized risk after allocation, allowing covariance cleaning to be optimized for the portfolio it ultimately produces while keeping the core process explicit and interpretable.

A key idea is that a covariance matrix contains more than pairwise correlations. It also reflects broader collective market patterns. Some capture general market movements, others represent more specific structures, while some are largely noise. Cleaning the matrix means deciding how much confidence each collective pattern deserves before influencing portfolio allocation.

The researchers argue that this principle extends beyond portfolio construction. Whenever a noisy covariance matrix is transformed before guiding a decision, the process can be viewed as correcting collective market patterns. Their neural network learns these corrections while remaining grounded in the mathematical structure of the problem.

The method is designed to respect the symmetries of covariance matrices. Portfolio results should not depend on the order in which stocks are listed or on arbitrary representations of the same risk structure. By incorporating these invariances, the network learns a general cleaning rule instead of memorizing a fixed set of assets.

In out-of-sample tests on U.S. equities from 2000 to 2024, a model calibrated on a few hundred stocks was successfully applied, without retraining, to roughly one thousand stocks. The resulting portfolios achieved lower realized volatility, smaller drawdowns and higher Sharpe ratios than competing covariance estimators, including advanced nonlinear shrinkage methods. These advantages remained in realistic trading simulations that included transaction costs, slippage, exchange fees and financing costs, suggesting that neural networks may be most useful in finance when designed around the symmetries and constraints of the systems they aim to learn.

More information: Christian Bongiorno et al, End-to-end large portfolio optimization for variance minimization with neural networks through covariance cleaning, The Journal of Finance and Data Science. DOI: 10.1016/j.jfds.2026.100179

Journal information: The Journal of Finance and Data Science Provided by KeAi Communications Co., Ltd.

The Paradox of Whistleblower Incentives

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From JPMorgan Chase to Tesla, whistleblowers have become a major force in corporate accountability, exposing issues ranging from misleading disclosures to safety concerns. Regulators have reinforced that role by offering substantial financial incentives, with the U.S. Securities and Exchange Commission awarding whistleblower payouts worth as much as $20 million.

The logic behind those rewards seems straightforward: Larger payouts should encourage more people to report wrongdoing. But new research by Ronghuo Zheng, associate professor of accounting at McCombs School of Business, suggests the relationship is more complicated. Working with Lin Nan of Purdue University, Zheng argues that whistleblower incentives operate within a “Goldilocks” range — too little discourages reporting, but too much may also create unintended consequences.

According to the researchers, excessively large rewards can actually reduce whistleblowing. Their theoretical economic model shows that when incentives become too strong, managers may become reluctant to share sensitive information with employees who could later report problems to regulators. “If the whistleblowing incentive is too strong, it can potentially backfire,” Zheng says.

The dynamic begins when managers uncover defects such as regulatory violations or safety flaws. Under moderate incentive levels, managers still share information internally, allowing employees either to fix the issue or, in some cases, report misconduct externally. But when whistleblower rewards become especially lucrative, employees may be more likely to report issues rather than resolve them internally. Anticipating that possibility, managers may respond by restricting the flow of information altogether.

Zheng points to Theranos as a real-world example of the dangers linked to limited information-sharing. Founder Elizabeth Holmes tightly controlled access to information about the company’s faulty blood-testing technology, making it difficult for employees to understand the scope of the problems fully. The devices later proved unreliable, contributing to patient misdiagnoses, the collapse of the company, and criminal convictions for Holmes and another founder.

Although the study is theoretical rather than based on real-world data, Zheng says the findings carry important implications for regulators such as the SEC. Rather than continually increasing whistleblower payouts, the research suggests incentives should be calibrated carefully — strong enough to encourage reporting, but not so aggressive that they discourage internal communication and prevent problems from being identified and resolved before they escalate into larger crises.

More information: Lin Nan et al, Whistleblowing and Internal Communication, The Accounting Review. DOI: 10.2308/TAR-2024-0036

Journal information: The Accounting Review Provided by University of Texas at Austin

When Location Matters More Than Growth in Investment Returns

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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