The Role of Human Capital in Firm Valuation: An Application on BIST

Because of the deficiencies of accounting standards to capture the real value of a company in the new knowledge-based economy, the gap between firms' market value and book value continues to increase. The main objective of our study is to contribute to the discussions on this gap via extended Ohlson Model by adding human capital (HC) as 'other information' into the original Ohlson Model (OM) and try to find out incremental explanatory power and value relevance of HC indicators on firm value on a sample of Borsa Istanbul publicly traded industrial companies from 2004 to 2014. The obtained data are analyzed through the Stata and Eviews statistical packaged softwares using panel econometric models. The findings show that OM is suitable for the Turkish context and extended model can reveal the significant part of the unexplained variation in firm values, therefore HC can be considered as value-relevant in making business valuation decisions and as a result management should make appropriate resources planning on compensation policies to maximize firm's long-term competitiveness in the global market and also to create and manage human assets more effectively and efficiently.