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Abstract

This study examines the selective disclosure of labor-related costs by U.S. firms and estimates the proportion of these costs that the market values as an investment in human capital. Labor-related costs are separately identified in the financial reports of only a small fraction of all U.S. Compustat firms. Larger firms, firms in industries that are regulated, are more labor-intensive, and have relatively little competition are more likely to report these costs voluntarily. Using a modification of the residual income valuation framework with a sample of firms that consistently disclosed their labor-related costs, the study finds that for these firms about 16 percent of all such costs represent an investment in human capital, and that about a third of this asset depreciates annually. Further, the human capital asset averages about 5 percent of the total market value of the firm and accounts for about 16 percent of the difference between market and book value. The ratio of the human capital asset to market value is found to be positively related to operating uncertainty, industry concentration, and industry-adjusted average compensation paid to employees. The human capital asset is also positively associated with analysts' long-term forecasts of earnings.

CEO gender and corporate labor cost

“…Our findings also contribute to the stream of literature that studies the determinants of firm‐level labor cost. In addition to previously documented factors which include leverage (Chemmanur et al., 2013; Stuebs & Sun, 2010), firm size (Ang et al., 2002; Ballester et al., 2002; Stuebs & Sun, 2010), profit orientation (Ang et al., 2002), information intensity (Ang et al., 2002), ROE volatility (Ballester et al., 2002), and market‐to‐book ratio (Stuebs & Sun, 2010), we find that CEO gender also influences firm‐level labor cost. Moreover, our study also provides additional evidence to the literature on influences resulted from female CEO appointments.…”

“…The percentage of publicly traded U.S. firms that voluntarily and consistently disclose labor cost in the United States is about 20% (Ballester et al., 2002; Lajili & Zéghal, 2005; Rosett & Shin, 2004). 2 Due to limited data availability and paucity of female CEOs, extant literature does not provide direct evidence on the relation between CEO gender and average labor cost.…”

The Role of Assumptions in Ohlson Model Performance: Lessons for Improving Equity-Value Modeling

“…Finally, in Table 3 Panel D, we reported the results of testing the conditions for the VDP holds. The independent term (γ 0 ) in Equation (18) was not significant for 105 firms, while in only 22 firms, the slope coefficient (γ 1 ) was statistically equal to one. In fact, in these 22 firms, both conditions jointly held.…”

“…Several papers have examined the OVM usefulness in predicting cross-sectional stock returns, among others, [5][6][7][8][9][10][11][12][13][14][15]. As Lo and Lys claimed [16], the OVM is a time series model by nature; hence, papers developed in the time series framework better capture the OVM's essence [17][18][19][20][21][22][23][24][25][26]. For this fact, we adopted the time series approach to conduct our analyses.…”