The Effects of Human Resource Management Decisions on Shareholder Value

51 Pages Posted: 19 Jul 2000 Last revised: 4 Apr 2015

See all articles by John M. Abowd

John M. Abowd

U.S. Census Bureau; Cornell University Department of Economics; Labor Dynamics Institute; School of Industrial and Labor Relations; NBER (on leave); CREST; IZA Institute of Labor Economics

George T. Milkovich

Cornell University - School of Industrial and Labor Relations; National Bureau of Economic Research (NBER)

John M. Hannon

SUNY at Buffalo - School of Management

Date Written: October 1989

Abstract

We examine the effects of selected human resource management decisions on the abnormal change in total shareholder return. Announcements of human resource decisions are classified into five types--general HR system announcements, compensation and benefits, staffing, shutdowns and relocations, and miscellaneous. Using an event study methodology we investigate whether any of these HR decisions had a discernible effect on either the level or variation of abnormal total shareholder return. We find no consistent pattern of increased or decreased valuation in response to the different types of HR announcements, even after controlling for the likely effect of such announcements on total compensation costs. We do find substantially increased variation in abnormal total shareholder return around the announcement date, which indicates that HR decisions do provide information to the stock market. The events associated with increased variation in total shareholder value are permanent staff reductions and shutdown/relocations. The absence of consistent valuation effects combined with the evidence of increased variation in shareholder value may be attributed to uncontrolled firm-specific factors, the categorization of the HR events or, simply, to the unique interpretations the market placed upon these events.

Suggested Citation

Abowd, John Maron and Milkovich, George T. and Hannon, John M., The Effects of Human Resource Management Decisions on Shareholder Value (October 1989). NBER Working Paper No. w3148. Available at SSRN: https://ssrn.com/abstract=227297

John Maron Abowd (Contact Author)

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