Market Implication of Human Capital Investment

The empirical determination of whether human capital investment creates intangible assets and contributes to firms' profitability and market values is seriously hampered by the lack of publicly disclosed information on such practices. Using unique survey data regarding employee training practices, we examine and find that employee training expenditures are positively related to both contemporaneous and future operating performance as well as market values. Further, following the Balanced Scorecard theory, we test whether incorporating training into the firm's performance measurement system has a positive effect on firm value. The empirical results suggest that training in conjunction with the use of performance metrics based on customer, internal process and learning and growth perspectives is positively related to the use of performance metrics in the financial perspective, which in turn has significantly positive effect on firms' market values. The establishment of a direct relationship between market price and human capital investment sheds light on corporations' human resource management practices. In an attempt to integrate empirical accounting research with general management research, this paper broadens the horizon for accounting scholars with regard to the significance of such internally-developed intangibles.