The Stock Market Value of Human Capital Creation

42 Pages Posted: 9 Oct 2020 Last revised: 15 Mar 2022

See all articles by Ethan Rouen

Ethan Rouen

Harvard Business School

Matthias Regier

TUM School of Management

Date Written: March 3, 2022


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

JEL Classification: M41, E22

Suggested Citation

Rouen, Ethan and Regier, Matthias, The Stock Market Value of Human Capital Creation (March 3, 2022). Harvard Business School Accounting & Management Unit Working Paper No. 21-047, Available at SSRN: or

Ethan Rouen (Contact Author)

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States
617-495-6275 (Phone)


Matthias Regier

TUM School of Management ( email )


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