Equity market valuation of human capital and stock returns |
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Authors: | Christos Pantzalis Jung Chul Park |
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Institution: | 1. Department of Finance, College of Business, BSN 3403, University of South Florida, Tampa, FL 33620, United States;2. Department of Economics and Finance, College of Business, P.O. Box 10318, Louisiana Tech University, Ruston, LA 71272, United States |
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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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Keywords: | J24 G12 |
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