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      The Stock Market Value of Human Capital Creation
      03 Nov 2020Working Paper Summaries

      The Stock Market Value of Human Capital Creation

      by Matthias Regier and Ethan Rouen
      Measuring human capital creation is complex but increasingly important to managers for understanding the relationship between employee expenditures and firm performance. This paper develops a strategy to examine aspects of the intangible human capital investment embedded in a firm’s personnel expense.
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      Author Abstract

      We develop measures of firm-level human capital creation from publicly disclosed personnel expenses (PE) and examine the stock market valuation of these characteristics. Separately measuring human capital creation efficacy and opportunity, we first show that efficacy is positively associated with characteristics of human-capital-intensive firms and employee productivity growth. Next, we find that efficacy has a positive pricing coefficient, implying that the market recognizes some of its variation. In our main analysis, long-short portfolios based on the human capital creation efficacy (opportunity) produce annualized abnormal returns of 4.0 to 5.4% (6.0 to 7.5%). Portfolios formed on the combination of efficacy and opportunities produce the strongest abnormal returns of 6.3 to 9.3% in annualized terms. Our results provide evidence of the importance to valuation of accurate human capital measurement.

      Paper Information

      • Full Working Paper Text
      • Working Paper Publication Date: October 2020
      • HBS Working Paper Number: HBS Working Paper 21-047
      • Faculty Unit(s): Accounting and Management
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      Ethan C. Rouen
      Ethan C. Rouen
      Assistant Professor of Business Administration
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