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Accounting Information Systems

The human capital value-relevance issue can also be found in former and current research on accounting information systems and corresponding organizational change. Therefore, this section concentrates on the development of information systems, the related human input factor and information and communication technology (ICT). Moreover, the relationships between advances in information systems, changes in organizational structures and subsequent human capital requirements are evaluated.

Past research in information technology has focused primarily on complementary changes related to ICT within an organization, including the information system, workplace organization and service after the introduction of a new information system. Especially the complementary changes in the service and workplace environment are expected to require high levels of human capital to support the transitional phase. The findings support this notion and show that the demand for a highly skilled workforce substantially increases, when organizations adopt advanced information systems and/or other technology (Bresnahan, Brynjolfsson, & Hitt, 1999). Related research by Wozniak (1987) focuses on the role of human capital in the adoption process of new technology. The research study builds on the diffusion of innovation theory and places particular emphasis on the decision making of early adopters. More specifically, the knowledge, skillset and experience of the workforce are predicted to have a significant effect on the adoption decision-making process. His findings support this notion by classifying the adoption decisions as a human capital-intensive activity. Moreover, the results suggest that a well-trained workforce decreases the costs and uncertainty related to adoption processes of new technology. However, an important support factor for this premise is the internal design of the organization. For instance, supplementary assets, such as adequate decision-right allocation or incentive structure, ensure a cost-efficient adoption process.

Organizational design literature

Empirical studies in the last decade have studied the complex internal structure that influences the decision right allocation as well as the structure of the incentive system. To identify potential determinants of this internal design structure, this review continues to assess the current internal design criteria and identify potential linkages to the proposed relationship of internal design and human capital levels.

The main theory used in this discipline is the agency theory. Generally, the agency theory assesses the situations where a principal allocates decision rights to the agent. This decision right allocation provides the individual with a substantially higher degree of freedom to act on his/her information advantage in the decision-making process (Jensen & Meckling, 1976). However, this additional autonomy of the agent creates a need for performance measures that allow for (more) discretion, but at the same time generates a need for limiting the agent's freedom with respect to personal rent extraction. Prendergast (2002) proposes that this delegation-incentive problem can be solved by linking the compensation of the agent to an aggregate performance measure. ‘‘Aggregate'' performance measures aim to provide a comprehensive overview about all possible activities but lack in respect to the level of detail, while ‘‘specific'' measures of performance offer information about a specific set of activities. The advantages of an aggregate measure for incentive purposes enables the agent to balance all possible activities and engage in the potential trade-off decision related to certain sets of actions (Prendergast, 2002). On the contrary, the implementation of specific performance measures significantly decreases the agents' ability to balance the various trade-offs, which effectively reduces the amount of decision-rights allocated to the agent (Jensen, 2001). Importantly, this restriction of decision-rights requires detailed knowledge of the agent's actions by the principal. More specifically, the benefits of delegation are highest in settings where the principal has no knowledge about the optimal actions of the agent. However, such a setting makes it considerably more difficult to link remuneration to multiple specific performance measures because the principal is unable to detect the optimal decision the agent should undertake and, as such, the associated measures and weightings (Prendergast, 2002).

Comprehensive measures are mainly financial in nature, such as net income or return on assets, and embody the most aggregate performance measures due to the inclusion of every action by the agent, which ultimately flow through the financial statements. Numerous types of non-financial performance measures can also, to a certain extent, provide an aggregate indicator about the overall actions of agent. For example, information on market-share involves all the customer acquisition decisions of the agent. However, neither of the two measure types reflects the complete consequences of these decisions, such as the cost implications of achieving a certain market-share. More importantly, the main focus lies on the specific measure and the associated activities, but no additional relations are captured. As a result, several scholars suggest that the principal should aim to select the incentive measure type that fits the assessment criteria of employee performance and the external and internal conditions of the organization (Melumad, Mookherjee and Reichelstein, 1992).

Summary of the different Perspectives

The various disciplines have explored the importance of human capital for organizational performance, competitiveness and learning. Generally, most researchers have identified direct relationships between human capital development and firm performance; however, some analyses also suggest certain moderators, such as the corporate strategy, organizational size or task specificity, which can significantly influence the relationships. Furthermore, the accounting information discipline revealed that human capital can have complementary effects for organizations that face uncertainty or risk. Lastly, the internal design also influences the organization's communication with the external environment.  


As Williamson (1999) observes, theories in the strategic management field basically boil down to two general types: governance-based theories (e.g., agency theory, transaction-cost economics, and property-rights theory), and competence-based theories (e.g., resource-based view, evolutionary economics, and dynamic capabilities).  In general, research studies related to human capital development focus on two different types of theories: governance-based models (e.g., agency theory, transaction-cost theory and/or signaling theory), and competence-based theories (e.g., resource-based view, dynamic capabilities or human capital theory) (Williamson, 1999). This research study will primarily build on three of these theories, namely the resource-based view (RBV), human capital theory and signaling theory.

Resource-based view

Firstly, the resource-based view (RBV), one of the most cited theories, is often used to explain performance and valuation differences between organizations across several competitive environments (Peteraf, 1993). As such, the study also attempts to justify investments in human capital development with the RBV. More specifically, human capital fulfills the conditions defined by the resource-based view and consequently may enable the firm to gain a sustainable competitive advantage. With respect to the conditions, the RBV requires a resource to be rare, valuable, inimitable and non-substitutable. While the general investments in human capital only partially conform with the conditions, the firm-specific investments seamlessly fulfill these conditions and potentially distinguish the organization from its competitors. Importantly, most of today's organizations also recognize this untapped potential and devote considerable resources to internal development processes or recruit highly skilled labor from the external environment.

In the last decade, scholars identified additional resource-focused components, which can be linked to RVB and used to explain the level of investments in human capital development. Particularly, Makadok (2003) examines two additional components that potentially influence the relationship between the resource of interest, human capital, and the firm performance. The two components relate to the accuracy of future value estimations by the manager and the severity of the agency problem. While the former focuses on the precision of future rent extraction of a resource, the latter concentrates on divergence of the manager's (agent) interest relative to the objectives set by the stakeholders (principal). His findings suggest that managers tend to significantly underinvest in resources that suffer from value and return estimation difficulties. As argued in this study, human capital also experiences these issues due to the intangibility of human capital, performance indicator deficiencies and the complexity of this asset. Further, the compensation contracts of executive managers are commonly based on short-term performance and more immediate performance indicators. As a result, the agent's interest to engage in human capital investments, which normally provide most of their benefits in the future, remains relatively low. Nonetheless, the potential future benefits, derived from human capital development, most certainly coincide with the objectives of the principal. To conclude, these additional concepts help to explain past inconsistencies (e.g. underinvestment) with respect to human capital and support further investigation towards credible value signals to internal and external parties.

Human capital theory

Another important theory for training and development related research is the human capital theory, which posits the importance of human capital as a key economic growth factor in the dynamic business environment (Becker, 1994). More specifically, it encompasses the sum of knowledge, skillsets and attributes embodied in the ability to produce economic output. The popularity of this theory led to research studies investigating the associations between human capital and decision making, firm performance and/or value relevance. Similar to the resource-based view, human capital theory is also considered to explain past underinvestment problems in the development of employees. The main issue relates to the missing return on investment estimation to justify the expenditure to external parties. Intuitively, organizations and the respective managers will only devote resources to a potential asset (e.g., human capital) with a precise and probable approximation of future returns. Therefore, the deficiency of information and its credibility can further help to explain the underinvestment problem stated by the human capital theory. The credibility issue mainly stems from the accuracy of human capital reporting required by the Generally Accepted Accounting Principles (GAAP). Particularly, GAAP enables organization to aggregate the expenditure for training, workshop and educational programs under general employee expenses accounts (e.g., Salary and Others). As a result, organizations only provide a limited amount of specific information to external stakeholders and therefore, inadequately signal future cash inflows.

Further reasons for potential “below-average” investments in human capital development can be described by a joint-theory approach of human capital theory and the agency theory. This joint-theory approach relies on an agent-principal relationship, under which one or more individuals (the principal(s)) contracts another individual (the agent) to perform service(s) on their behalf (Jensen & Meckling, 1976). Due to the contractual settings and utility maximization, such interactions face the risk of divergence by the agent(s) from the interest of the principal(s). Moreover, compensation schemes often incentivize agents to prioritize the short-term performance of the organization over the long-term survival. More specifically, bonus payments often rely on annual profit targets. Consequently, agents may hesitate to invest in long-term assets (e.g., human capital) due to the current deterioration of earnings with a non-immediate and uncertain effect on future performance.

Signaling theory

This prominent theory focuses on the credible communication exchange between two parties and roots in the concept of asymmetric information. For example, (potential) employees signal their ability (e.g., low-skill and high-skill individuals) levels to the employers by obtaining educational credentials. The informational value of this signal originates from the costliness of the signal and the inference by the employer. More specifically, costliness refers to the difficulty of low-ability individuals to obtain the credentials relative to high-ability individuals. As a result, the inference allows employers to consistently differentiate between low-ability and high-ability workers (Spence, 1978).

Further, Spence (1978) mentions that this theory is linked with the human capital theory to allow productivity differences that individuals/groups do not observe to be correlated with the cost or benefits of the credible signal. However, the disadvantage of linking the theories is a difficulty to distinguish what may cause the effect of human capital on corporate valuation. While proponents of the human capital theory assume that the higher productivity of employees is a driving force in creating future growth, advocates of the signaling theory argue that the higher ability displayed by the signal is responsible for the excess returns on human capital. One attempt by Arteaga (2016) identifies the effect of human capital on remuneration following a curriculum change (reduction of credits required) at a South American university. Specifically, she argues that the workload reduction, based on the ranking position, required entrance test scores and dropout rates, did not change the overall quality level and, thus implying a constant signaling value. However, the workload reduction may be negatively perceived by employers due to potential knowledge and ability gaps. As a result, the lower potential productivity derived from the workload reduction should lead to lower wages. Interestingly, the findings show a significant decrease of salary in the respective sectors, following the curriculum change. These findings suggest that the main determinant in this interaction is human capital, which also helps to discard a pure signaling theory approach. In other words, the respective graduates performed worse during the recruitment process and were placed in lower-quality organizations. Evidently, the lower-quality organizations provide lower levels of compensation, which follows the argumentation of the author. In line with past research, this study incorporates both theories but mainly focuses on the signaling theory and the credible information provided by the ATD BEST award to external stakeholders.


The announcement and receipt of the ATD BEST award can be perceived as a signal of exceptional employee development and education efforts demonstrated by an organization. Consequently, external stakeholders (e.g.; financial markets, supplier, investors, etc.) should highly value the uniqueness of this information, resulting from the lack of transparency with respect to training investment. Following the efficient-market hypotheses (EMH) and the assumption of a semi-strong form efficiency, such a unique signal possesses the potential to produce excess returns (Malkiel and Fama, 1970). A semi-strong form implies that share prices of organizations incorporate all publicly available information, and no excess returns can be derived with information of this nature. However, one can infer that information that was previously unknown may enable individuals to earn abnormal returns. More specifically, the first hypothesis is stated as follows:

H1: The exceptional performance in human capital development displayed by the ATD BEST award receipt serves as a signal that results in a stock price reaction, ceteris paribus.

An organization's research and development (R&D) outflows signal future earnings opportunities and are also valued in the stock market (Chan, Lakonishok and Sougiannis, 2001). Commonly, outputs of R&D incorporate patents, trademarks, new product development, or other intangible that may reduce the cost and/or increase the quality of current products or services of the organization. Additionally, R&D outputs may fulfill the RBV criteria, i.e. produce resources that lead to a sustainable competitive advantage. Particularly service and knowledge-intensive industries benefit from higher rates of innovation due to the fast-changing life cycles and high levels of competitiveness. A complementing asset required for this R&D process are the employees and their respective human capital level (Thornhill, 2006). Thus, firms with high R&D intensity, a commonly used indicator for the R&D level inherent to a company, may have a more favorable stock market reaction to the ATD BEST award receipt, resulting in the following hypothesis:

H2a: The higher the organization's R&D intensity, the more favorable the stock price reaction to the ATD BEST award receipt.

Regardless of the theory, human capital requires training, effort and investments to yield returns. Intuitively, these efforts are not cost-free, and the corresponding individuals demand adequate compensation to obtain desired skills and knowledge. Further, knowledge-intensive organizations, in order to attract highly-skilled labor, must offer additional financial and non-financial perks to differentiate themselves from competitors. One study by Baker, Punswick and Belt (2010) supports this claim. In their paper, they analyze and characterize principals' backgrounds, individual and school-level factors related to leadership stability, and the career paths and job switching behaviors of principals in the United States. The results confirm that the compensation of the principal, relative to peers in the same industry, exercises a consistent effect on job stability. In other words, the higher the salary, the more likely a principal is to remain at the respective school, the less likely he/she is to switch to another school.

While non-financial perks and other benefits are certainly difficult to observe for external stakeholders, the wage information is readily available and computable by external parties. The source for this information is the financial statements. Namely, the firm's staff expense, which includes salary, training costs and travel expenses. By comparing the average salary expense to the average wage in the industry, an indication of the competitiveness of compensation packages can be computed. The resulting indicator measures the organization's ability to recruit and maintain highly-skilled individuals. Firms with high values on this measure may indicate their commitment to human capital development and expect a more pronounced reaction to the ATD BEST award receipt. Consequently, the subsequent hypothesis is phrased accordingly:

H2b: The higher the organization's salary competitiveness ratio, the more favorable the stock price reaction to the ATD BEST award receipt.

The main objective of advertising-related expenses is to fulfill the consumer's demands and support the business-level objective of achieving a competitive advantage. By utilizing marketing activities to improve consumers' perception and satisfaction, an organization can enhance the purchase probability of their products and/or services and create customer value for the organization (Bagozzi, 1975). More importantly, these advertising-related expenditures can produce intangible assets for the organization. For instance, the marketing function can create brand value, relationships with customer and suppliers and capabilities, which can help to outcompete competitors and/or enhance bottom-line performance (Hennig-Thurau, Gwinner and Gremler, 2002). As a result, the advertising-related expenses can enable firms to differentiate themselves from competitors and provide the aforementioned benefits. Moreover, the potential to outcompete other organizations in the industry based on the respective “advertising -assets” will be further complemented by a highly competent workforce. To achieve the required level of human capital and fully utilize the potential of the “advertising-assets”, an organization requires investment into training and development of their employees.

In other words, higher levels of advertising, represented by the marketing intensity ratio, may indicate a complementary investment level in human capital development, which subsequently is appreciated by the external market.

H2c: The higher the organization's marketing intensity, the more favorable the stock price reaction to the ATD BEST award receipt.

The level of physical capital (e.g., property, plants, equipment (PPE)) may indicate the direction an organization desires to take in the upcoming future. On the one hand, high levels of physical capital may indicate the preference/requirement of automation, which necessitate a lower level and number of skilled employees. On the other hand, lower levels of tangible assets may direct stakeholder's focus on internal and external information-related capabilities, which are complemented by a highly-skilled workforce. Moreover, even the current automation trend will most certainly require the remaining workforce to obtain additional education and/or technology-related abilities to operate new machinery. Especially, in today's dynamic business environments, the substitution of manual labor to automation demands both highly technical and diverse skills from employees (Kromann, Skaksen and Sørensen, 2011). Nonetheless, whether the level of physical capital suggests the organization's direction towards automation or the reliance on employee competence, the physical capital level and intensity may be a good indicator for organizations and stakeholders to assess the value of human capital development. More formally, the PPE intensity is expected to amplify the effect of the external market to the human capital signal. The hypothesis is formulated the following way:

H2d: The higher the organization's PPE intensity, the more pronounced the stock price reaction to the ATD BEST award receipt.

As previously mentioned, high levels of physical capital may indicate the direction towards automation. This strategic move, linked with an organizations' R&D spending, may provide additional insights. For instance, organizations may allocate a major part of their resources to their tangible assets but decide to engage in low R&D spending behavior. This resource allocation may indicate a focus on low-cost production, which places less emphasis on the development of innovative products or process. As a result, the requirement for highly-skilled labor is relatively low and less important. On the other hand, if an organization possesses high levels of physical capital and simultaneously invests considerable amounts in R&D, one can infer the need for highly competent and skilled labor to effectively utilize these investments. A similar research study by Ballot, Fakhfakh and Taymaz (2006) investigates the main beneficiaries of R&D, human capital and physical capital investments. The respective investment outputs – productivity and wage – were analyzed and the share of returns between the parties, employer and employees, was computed. Their findings suggest that the employer appropriates the largest share of returns with respect to R&D investments and human capital development. These outcomes follow the prediction of the authors; however, the employees also seize returns of the physical capital and R&D investments. This positive effect on wage raises several questions. Particularly, the focus lies on the mechanisms behind this rent extraction. Nonetheless, the organization is expected to derive the majority of the returns of these investments. Moreover, personnel in other/related departments will further increase the returns when organizations engage in company-wide training and development. Thus, the following relationship is expected:

 H2e: The higher the interaction between the organization's PPE intensity and R&D intensity, the more favorable the stock price reaction to the ATD BEST award receipt.

Next, the study focuses on the relationship between the communication of above-average human capital and internal management practices, including the human capital practices, incentive structures and decision-right allocation.

Signaling theory supports the premise that providing forecasts/announcements to external stakeholders mainly serves a guidance purpose with respect to the financial performance of the organization. Furthermore, the concept of information asymmetry also plays a key role in this communication between the organization and external stakeholders. More specifically, the entities often have a substantial informational advantage regarding the future growth opportunities and can utilize several communication channels to inform external parties. Consequently, the guidance function of forecasts provides pronounced benefits: First, the organization ensures proper guidance of analysts and other external parties. This will enable the entity to obtain economic benefits with respect to financing and corporate valuation, while external parties obtain additional information of future growth opportunities, for more optimal resource allocation. As a result, it is expected that entities with high levels of human capital and competence levels with respect to human capital are more likely to issue earnings forecast. More formally, it is hypothesized that:

H3a: The human capital management practice level positively influences the issuance probability of management earnings forecasts.

As previously mentioned, prior management guidance enables analyst to reach achievable forecast and earnings levels. More specifically, the past literature has shown that analysts tend to initially provide highly optimistic estimates and then periodically reduce these estimates to more achievable levels throughout the forecasting period (Richardson, Teoh and Wysocki, 2004). As a result, managers may be incentivized to initially provide less optimistic (more pessimistic) forecasts, which analysts subsequently reduce to even more achievable earnings levels. Furthermore, the private information on future growth opportunities (e.g. human capital development or new product release) will additionally enable entities to achieve the lower financial targets. Past studies provide supplementary evidence, which supports this argumentation by documenting the potential earnings surprises related to achieving or missing earnings targets (Bartov, Givoly and Hayn, 2002). For instance, Kasznik and McNichols (2002) examined the market reaction with respect to entities meeting/beating earnings expectations and whether these rewards reflect the earnings' attainment or a distinct market premium. Their findings suggest that greater valuation does not solely result from target fulfillment but also from greater expected future earnings. Consequently, the capital market rewards the accuracy of the guidance, while also inferring potential future earning possibilities. These possibilities may result from new business partnerships, product releases and similar business transactions, which most likely require support by the organizational human capital levels. To summarize, the initial forecast guidance function and analyst adjustments incentivize managers to provide less positive (more pessimistic) forecasts, which are subsequently more attainable by the organizations. Furthermore, these less accurate forecasts reduce the likelihood of potential earnings surprises.

Lastly, I expect this whole interaction to be supplemented by human capital levels and their respective practices. This supplementation will originate in numerous forms. First, organizations with higher human capital levels may require higher guidance support for external parties due to the lack of transparency with respect to human capital. Second, the lack of transparency makes this resource significantly more private, which requires organizations to supply information to the external market. Lastly, the contributing factor of human capital to support the achievement of earnings targets and human capital's future earnings potential. Respectively, the following hypothesis follows this argumentation and states that higher human capital practices levels incentivize managers to provide less accurate and positive earnings reports to the external market. Linked to this argumentation, I also expect the human capital practices levels to be positively related to the probability of meeting the earnings forecasts. Consequently, the following hypotheses are phrased accordingly:

H3b: Conditional on the probability of issuing a management earnings forecast, human capital management practice levels positively influence the probability of a pessimistic forecast bias.  

H3c: Conditional on the probability of issuing a management earnings forecast, human capital practice levels positively influence the probability of meeting the management earnings. 

Table 1:  Overview of hypotheses

H1a H1: The exceptional performance in human capital development displayed by the ATD BEST award receipt serves as a signal that results in a stock price reaction, ceteris paribus.

H2a The higher the organizations' R&D intensity, the more favorable the stock price reaction to the ATD BEST award receipt.

H2b The higher the organizations' salary competitiveness ratio, the more favorable the stock price reaction to the ATD BEST award receipt.

H2c The higher the organizations' marketing intensity, the more favorable the stock price reaction to the ATD BEST award receipt.

H2d The higher the organizations' PPE intensity, the more pronounced the stock price reaction to the ATD BEST award receipt.

H2e The higher the interaction between the organizations' PPE intensity and R&D intensity, the more favorable the stock price reaction to the ATD BEST award receipt.

H3a The human capital management practice level positively influences the issuance probability of management earnings forecasts.

H3b Conditional on the probability of issuing a management earnings forecast, human capital management practice levels positively influence the probability of a pessimistic forecast bias.  

H3c Conditional on the probability of issuing a management earnings forecast, human capital practice levels positively influence the probability of meeting the management earnings

The hypotheses will be examined following the methodology section.


Research Design

The ATD BEST training award receipt represents an event that potentially influences the valuation of an entity. Consequently, the paper uses an event study to capture the announcements and potential effect of the ATD BEST award. These ATD BEST Awards are received by organizations, which display company-wide objectives due to employee knowledge development. Organizations planning to be considered for this award need to pay an application fee of $150, the provided information must represent the entire enterprise and the entity needs at least 10 full-time employees. Further, all entries will be considered as blind applications, which means that no mention of the company name, identifying program, or achievements is allowed.

The subsequent evaluation consists of an extensive survey which assesses the knowledge and ability development on a corporate-wide basis, the importance and position of learning in the corporate culture, links between individual learning and the effects on the firm performance and lastly, the investments into human capital development. More specifically, criteria are used to evaluate the executive support and his/her role of the talent development function in the organization. The ATD assessors check whether talent development is considered a strategic driver and how talent development initiatives drive business results (15% of the quantitative score). Next, reviewers will investigate how developing talent is valued in the corporate culture and whether the employees take advantage of the learning opportunities offered (15% of the quantitative score). Subsequently, the award committee reviews the social learning aspect and link between talent development and the performance of the organization. During this section, the committee examines whether the organization is on the leading edge of best practices for the talent development profession (15% of the quantitative score), how talent development practices align to organizational strategy and what effectiveness and efficiency measures are implemented (50% of the quantitative score). Conclusively, a check for talent development staffing is conducted (5% of the quantitative score). All this information is assessed by a group of talent development experts. These individuals are practitioners with global expertise and comprise chief talent development officers and other senior learning leaders.

The resulting benefits for the organization and external parties are wide-ranging. For instance, the organization receives feedback about their development efforts and receives an indication of their training performance relative to competitors, while the receipt provides external stakeholders with more transparency regarding human capital development. Furthermore, the research paper relies on the ATD BEST award to avoid potential self-reporting issues, which might be experienced with other forms of disclosure (e.g., corporate responsibility reports (CSR), human capital disclosure, etc.). For example, the human capital or CSR disclosure is on a voluntary basis and an unverified perspective. In other words, the organizations may have an incentive to display themselves favorably relative to the existing state of the organizations. This premise does not hold for the Association of Talent Development. As a third party, they are not motivated to present organizations in a more positive/negative way. On the contrary, the ATD has strong incentives to remain credible and independent from organizations to continue their operations.

As a result, the previously mentioned ATD training award receipt will provide a proxy for the human capital level. In other words, the BEST award serves as a signal for “above-average” investments in human capital development. Using this signal, the event study focuses on a sample of ATD-BEST awarded firms and their financial performance to test for statistically significant abnormal returns. These abnormal returns should follow the semi-strong form of the EMH, which predicts only information that is not readily available to the public enables stakeholders to earn returns above that of the overall market. The ADT BEST awards fulfill these criteria, because of the transparency issues with respect to specific public announcements (e.g. earnings announcement) or accounting line items which enable simple human capital recognition.  Moreover, challenges in quantifying the causal changes in human capital result in confusion for internal and external stakeholders. Lastly, the signal has relative value.  More specifically, due to the wide-ranging construction of the ATD BEST survey, the ranking of organizations can be considered on an ordinal scale.  In other words, the position on the list allows for comparisons and inferences. For instance, higher-ranked organizations are expected to invest higher amounts in training expenditures and human capital management policies compared to lower-ranked entities. Furthermore, one can infer that recognized organizations are more likely to have higher human capital than those not on the list.  

To summarize, the ATD BEST award receipt will serve as an imperfect construct of the organization's human capital and be measured by stock market abnormal returns on or around the announcement date of the award. The respective stock market information is collected from the Center for Research in Security Prices (CRSP), the S&P Global Market Intelligence database Compustat and Bureau van Dijk's Orbis database. Moreover, this study uses daily stock data for all variables to confirm the influence of the receipt on corporate valuation. Using daily data results in higher frequency of observations, which may improve the statistical analysis. The results are then used to examine the first hypothesis. The following hypotheses aim to explain these abnormal returns and will be tested through regression analyses. Most of the regression variable information are also collected from Compustat and Orbis. Additionally, the analysis incorporates several control variables, such as size, industry and consecutive award-winning to account for potential variance concerns.

The third hypotheses with respect to the organizational design choices focuses on the internal design of organizations and factors that influence this structure. More specifically, the study applies the non-anonymized data from the World Management Survey (WMS), which contains data on several firm-specific management practice categories (see e.g., Bloom and Van Reenen 2007; Bloom et al. 2014). The World Management Survey (WMS) comprises an extensive survey methodology with the objective of robust management practice measures. The methodology ensures this robustness with three crucial criteria. More specifically, the three criteria are (1) conducting interviews with managers, (2) obtaining accurate responses, and (3) assessing management practices. For instance, the second and third hurdle require each interviewer to conduct a minimum number of interviews to ensure consistent interpretation of responses, an additional interviewer who silently listens and simultaneously assess the examinee's responses, and lastly a follow-up interview with a different manager in the same organization is conducted for a sample of organizations. This extensive interview process leads to highly reliable and consistent management practice scores, which enable testing of respective hypotheses. The setup of the WMS methodology is described in Bloom and Van Reenen (2007) and shown in Appendix I.C and Appendix I.D. The voluntarily disclosed earnings forecasts stem from the Thomson Reuters IBES database. Furthermore, the necessary control variables are derived from Orbis, CRSP and Compustat.


The original sample contains 168 firms across various industries, which received the ATD BEST Award from 2009-2014. The respective timeframe is chosen for several reasons, First, the obtainability of stock market information requires organizations to be officially registered on a stock exchange. Second, subsequent internal analysis necessitates firms to be included in the World Management Survey. As a result, the timeframe provides the most representative sample for this research study and enables an adequate sample size for both testing procedures. The final sample, following the data cleaning process, exclusion of non-public firms and matching with the WMS, consists of 64 firm-year observations from 47 individual organizations. (See Appendix I.A. Panel A – Table 2-2a). This final sample is also used for the subsequent analyses with respect to the internal design of the organizations.


Abnormal Returns (Dependent Variable)

The dependent variable for the second hypothesis (H2a-2e) are abnormal returns computed through an event study analysis. The computation is based on the actual return of the respective ATD BEST firms relative to the expected market return based on the S&P 500 market index performance. The initial variables, closing prices and expected returns, are adjusted for potential events that may influence the stock price on the event date. For example, public announcements and/or dividends could significantly influence the returns and falsify the informational value. Lastly, the dependent variable exists in four different time intervals. The five different formats are the abnormal return on the event date, ±3-Day abnormal returns, ±5-Day abnormal return, ±10-Day abnormal return and a ±15-Day abnormal return. The different models aim to capture leakage of information and deferred stock reactions.  

Salary Competitiveness Ratio (Independent Variable)

The independent variable Salary Competitiveness Ratio compares the average annual employee compensation to the average industry compensation. This measure provides an indication on how competitive the current remuneration is for an assigned job. This research study measures the compensation against the general market compared to close competitors. The primary reason for this computation choice is the data availability. The usefulness of this information affects the organization's ability to attract and retain highly-skilled individuals. Moreover, the computed ratio also provides external stakeholders with information with respect to potential learning abilities, wage attractiveness and future growth.  

The data for average staff expenses and industry averages is obtained from Orbis.

R&D Intensity (Independent Variable)

This and previous research studies define this variable as the ratio between the organization's research and development (R&D) expenditure and total sales. This measure indicates the organizations' investment level to spur innovation and, correspondingly, enhance productivity. The annual information of the R&D expenditure (XRD) of an organization is divided by the total revenue excluding other operating revenues (SALE). All the information is obtained from Compustat and supplemented with Orbis.

Advertising Intensity (Independent Variable)

This ratio uses the marketing-related expenditures divided by total sales. Like R&D intensity, this ratio indicates the company's effort to communicate, acquire and retain customers. Further, the potential inference of future growth opportunities may also be possible in certain industries. The Advertising/Marketing expenditure (XAD) is derived from Compustat/Orbis and divided by total sales (SALE).

Property, Plant, and Equipment (PPE) Intensity (Independent Variable)

The PPE intensity variable captures the firm's ability to effectively utilize their physical assets. The industry plays a key role in a firm's capital intensity and dictates the amount of tangible assets. This ratio is computed by dividing the organizational PPE – (Net) (PPENT) by the respective annual sales (SALE). The necessary data is also collected through Compustat.

Performance (Control Variable)

This measure accounts for the historic performance differences of the organizations. Main reason for this control variable results from the potential earnings variability across organizations and industries. The measure is computed through total sales (SALE) by the assets (AT) of the organization.

Firm Size (Control Variable)

The inclusion of organizational size aims to control greater coverage of larger firms relative to smaller firms by stakeholders and varying effect strength by environmental changes. For instance, stakeholders, such as analysts or investors, may already infer efforts related to human capital development from the organizational size. Consequently, firm size is predicted to have a positive effect on the abnormal returns and is defined by the natural logarithm of the total assets.

Previous Awards (Control Variable)

To account for the informational value, this research study also considers the previous award receipt. This variable attempts to capture the potentially reduced effect of continuous ATD BEST awards receipts. Indisputably, the receipt for consecutive years provides information about the training efforts undertaken by the organization. Nonetheless, the EMH, with a semi-strong assumption, only holds for informational value, which is unique and previously unattainable by the public (Basu, 1977). The subsequent successes no longer satisfy this condition and therefore reduce the information value. As a result, one would expect a negative relationship between this dummy and the abnormal returns. However, the consecutive award receipt may also be perceived as a constant and substantial effort in human capital development, which is rewarded by higher valuations. Consequently, the study states no specific directional relations between the two variables. The variable is defined as a dummy which takes 1if the organization won the ATD BEST award in the previous year; 0 otherwise.

Industry (Control Variable)

The control variable for industry effects accounts for different expectations with respect to human capital development across industries. For example, the highly-dynamic environments of certain industries (e.g. service or technology organizations) may cause certain expectations with respect to human capital levels. As a result, award receipts in such industries are more likely to result in abnormal return relative to the general market. These 5 dummy variables are based on the respective standard industrial classification (SIC) codes.

Country (Control Variable)

To account for specific country effects responsible for the abnormal return, the study includes various dummy variables. For instance, training and development might be more cost-efficient or of higher importance in certain developed countries relative to developing countries. The respective 8 dummy variables are based on the ATD Best award winners' location.

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