Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • 2022
  • Working Paper
  • HBS Working Paper Series

The Stock Market Value of Human Capital Creation

By: Matthias Regier and Ethan Rouen
  • Format:Print
  • | Language:English
  • | Pages:42
ShareBar

Abstract

We develop a measure of firm-year-specific human capital investment from publicly disclosed personnel expenses (PE) and examine the stock market valuation of this investment. Measuring the future value of PE (PEFV) based on the relation between lagged PE and current operating income, we first show that PEFV is positively associated with characteristics of human-capital-intensive firms. Next, we find that PEFV has a positive pricing coefficient, implying that the market recognizes some of its variation. In our main analysis, we find that market participants fail to fully impound the investment in human capital. The absolute value of analyst forecast errors is increasing in firm PEFV, and the signed value of these errors reveals that analysts are pessimistic for earnings of firms with high human capital investments. A long-short portfolio based on PEFV produces annualized value- weighted (equal-weighted) abnormal returns of 6.5% (3.5%). Portfolios formed by interacting PEFV with total PE, which combines the current potential investment in human capital with the historic portion of PE that created human capital, increase these returns to between 4.8% and 7.8%. These results are insensitive to numerous empirical choices.

Keywords

Intangibles; Market Valuation; Human Capital; Stocks; Financial Markets; Valuation

Citation

Regier, Matthias, and Ethan Rouen. "The Stock Market Value of Human Capital Creation." Harvard Business School Working Paper, No. 21-047, October 2020. (Revised March 2022.)
  • SSRN
  • Read Now

About The Author

Ethan C. Rouen

Accounting and Management
→More Publications

More from the Authors

    • December 2022
    • Faculty Research

    KKR at CHI Overhead Doors (C)

    By: Dennis Campbell and Ethan Rouen
    • December 2022
    • Faculty Research

    KKR at CHI Overhead Doors (B)

    By: Dennis Campbell and Ethan Rouen
    • December 2022
    • Faculty Research

    KKR at CHI Overhead Doors (A)

    By: Dennis Campbell and Ethan Rouen
More from the Authors
  • KKR at CHI Overhead Doors (C) By: Dennis Campbell and Ethan Rouen
  • KKR at CHI Overhead Doors (B) By: Dennis Campbell and Ethan Rouen
  • KKR at CHI Overhead Doors (A) By: Dennis Campbell and Ethan Rouen
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College