Human Capital resource as cost or investment: A market-based analysis

• Published in: International journal of human resource management Vol. 34; no. 6; pp. 1213 - 1245
• Main Authors: Vithana, Krishanthi, Jayasekera, Ranadeva, Choudhry, Taufiq, Baruch, Yehuda
• Format: Journal Article
• Language: English
• Published: London Routledge 26-03-2023; Taylor & Francis LLC
• Subjects: Capital investments; Earnings; Employees; Expenditures; Financial reporting; FTSE 100; Human capital; human capital resource; human resource expenditure; Human resource management; Investments; market myopia; Securities markets; Stock exchanges; Valuation; value added; Value creation
• ISSN: 0958-5192; 1466-4399
• DOI: 10.1080/09585192.2021.1986106

This study empirically investigates the myopic behavior of the stock market toward firms' human capital resource investment, paying particular attention to two key proxies: human resource expenditure and the firm value added allocated to the employees. Focusing on human capital resource investment decisions' alignment with near versus longer-term emphasis by investors, we examine firms listed in the Financial Times Stock Exchange (FTSE) 100 over a five-year period using an established accounting-based valuation model. Our results show that human capital investment discourse leads to overweighting of the forecasted longer-term earnings in the apportionment of share price constituents, suggesting that investors consider investment in employees to generate more return in the longer-term. Additionally, our findings prove that investors respond to firm level human capital resource as an investment generating more return in the longer-term. This emphasises the importance of communicating human capital resource investment information that accurately reflects the firm value creation via employees in external financial reporting.