Article ID Journal Published Year Pages File Type
5090478 Journal of Banking & Finance 2009 14 Pages PDF
Abstract

We investigate whether and how well firms' stock market valuations reflect their employees' collective skills and effectiveness relative to that of their industry peers and competitors. We devise a relative stock market valuation measure of human capital intangibles (EVHC) and find that portfolios of low EVHC firms systematically outperform portfolios of high EVHC firms by an average 1.34% per month. However, this is primarily a small firms effect, because for large firms the excess returns of the arbitrage portfolio that is long on the low EVHC stocks and short on the high EVHC stocks is zero. Our results suggest that reliance on human capital intangibles may proxy for risk not fully accounted for by conventional asset pricing models, or alternatively, that the market cannot correctly price human capital intangibles for small size firms.

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Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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