Investors in search of stronger portfolio performance may need to reconsider traditional metrics of company evaluation, according to a groundbreaking interdisciplinary study emerging from Penn State University. This new research underscores the significance of a company’s geographical location when constructing investment portfolios and suggests that integrating real estate market dynamics can amplify returns well beyond those achieved by focusing solely on growth potential. The study reveals that portfolios designed with attention to where corporate headquarters are situated, particularly vis-à-vis the regional housing market, can generate returns up to three times higher than those predicated solely on pursuing growth stocks.
This pioneering analysis, which appears in the Journal of Empirical Finance, addresses a long-standing enigma in financial economics: the “value-growth premium.” This phenomenon captures the consistent superior performance of value stocks—generally mature and stable companies in sectors such as manufacturing and healthcare—over conspicuously dynamic growth stocks typically found in areas like technology. Centering real estate data alongside traditional financial indicators, the study reveals a crucial causal mechanism behind this premium, rooted in the local economic environment surrounding company headquarters.
The crux of the findings indicates that companies headquartered in high-cost regions—take Silicon Valley and New York City as prime examples—face greater labor and operational expenses driven by inflated housing markets. These increased expenses effectively diminish the proportion of company resources available to be distributed back to investors, providing a fresh explanatory dimension for why some growth stocks underperform despite their aura of innovation. This revelation presents a compelling challenge to established investment paradigms, urging the integration of geographic economic factors into asset valuation.
Professor Timothy T. Simin of Penn State’s Smeal College of Business, one of the study’s co-corresponding authors, emphasizes the real-world implications of this discovery. “Our research confirms that the physical locale of a firm’s headquarters is not just a trivial detail but a fundamental variable influencing investor returns,” he explains. By embedding regional housing price dynamics into portfolio construction, investors can holistically assess risk and growth potential in a manner previously underutilized in financial models.
The expansive dataset underpinning this research encompasses 9,308 publicly traded companies spanning three major U.S. stock exchanges over two decades, from 2000 to 2019. The study categorizes these firms using the book-to-market equity ratio, a well-established financial metric comparing a company’s net asset value to its market capitalization. Traditional interpretations define a company with a high book-to-market ratio as a value stock, while a low ratio indicates a growth stock. This dichotomy formed the basis for sorting firms before overlaying geographic cost-of-living and housing market indices.
Brent W. Ambrose, co-corresponding author and renowned professor of real estate at Penn State, articulates the novelty of the approach. “While the value-growth premium has mystified financial scholars for decades, our integrative model—melding finance, real estate economics, and urban geography—offers a sophisticated yet intuitive explanation that the market has not fully considered.” By correlating stock returns with regional housing market intensity, the model quantifies how location-specific economic pressures affect corporate profitability and, consequently, investor returns.
Beyond its explanatory power, the study extends profound implications for corporate strategy and urban policy. Firms contemplating headquarters relocation or expansion now have empirical evidence urging consideration of local costs not only on operational efficiency but also on shareholder value. Simin cautions, “Choosing a headquarters location in an expensive area carries strategic advantages, such as access to specialized labor pools and innovation clusters, but firms must carefully weigh these benefits against the resultant cost burdens.”
For municipal officials and urban planners, the research offers actionable insights. Ambrose notes that local governments seeking to entice or retain businesses might enhance their appeal by addressing housing affordability. “Our findings imply a direct linkage between local housing policy and economic development prospects, revealing that mitigating housing costs can reduce firm expenses, thereby fostering a more competitive business environment.” This point underlines a previously underexplored nexus between urban real estate markets and economic growth strategy.
Adding to the depth of analysis, Yifan Chen—assistant professor at the University of Hawaii’s Shidler College of Business and a recent Ph.D. graduate from Penn State—played a pivotal role in correlating real estate trends with corporate financial outcomes. The cross-disciplinary expertise the team brings illuminates previously invisible contours of the market, illustrating how integrated models can unravel complex financial puzzles by incorporating dimensions traditionally siloed from finance, such as urban economics and housing markets.
The study methodically stratifies companies by overlaying the spatial dimension of headquarters locations with housing price indices that track temporal fluctuations in residential real estate costs. This nuanced categorization reveals a consistent pattern: growth companies headquartered in the priciest housing markets underperform compared to comparable firms based in more affordable regions. Meanwhile, value stocks, often anchored in less expensive locations, withstand these cost pressures, explaining part of their persistent outperformance in the market.
These insights challenge the conventional wisdom that primarily emphasizes firm-specific fundamentals such as earnings growth rates, product innovation, or market share expansion. Instead, this research advocates incorporating macroeconomic and regional parameters that influence cost structures and resource allocation, illuminating a multifaceted approach to stock valuation. As Simin remarks, “Investors would be well-advised to consider geographic factors as integral to their decision-making, potentially unlocking new avenues for portfolio optimization.”
The fusion of real estate and financial models in this study sets a new precedent for interdisciplinary financial research. It exemplifies how borrowing analytical frameworks across domains can yield robust theories capable of resolving enduring anomalies in finance literature. Importantly, utilizing a two-decade span of comprehensive data lends credibility and stability to the conclusions, establishing them as highly relevant for both academic inquiry and practical investment management.
Finally, the researchers express gratitude toward the alumni-supported Borrelli Institute for Real Estate Studies at Penn State, whose backing was instrumental in acquiring the extensive data underpinning the analysis. This collaboration underscores the value of continued institutional support in driving research that straddles multiple disciplines and holds substantial implications for investors, corporations, and policymakers alike.
Subject of Research:
The relationship between firm headquarters location, regional housing market dynamics, and the value-growth premium in stock performance.
Article Title:
Firm location and the value-growth premium
News Publication Date:
June 1, 2026
Web References:
https://doi.org/10.1016/j.jempfin.2026.101690
References:
Journal of Empirical Finance, Vol. TBD, 2026.
Keywords:
Value-growth premium, corporate headquarters location, housing market, portfolio returns, book-to-market equity, urban economics, real estate finance, labor costs, investment strategy, firm performance, geographic cost differentials
