Value Relevance of Human Capital and Capital Based Residual Income Measures on the German and the U.S. Capital Market

Fachartikel 194

Allg. BWL
Working Paper
Co Autoren
Sebastian Haubold, Mark A. White


Human Capital is one of the mostly quoted critical resources and value drivers in highly developed industries. In financial statements the cost of labour is often higher than the cost of capital. However, value-based management systems are still concentrating on the residual income, i. e. on the excess returns over a capital charge on capital employed (residual income).
The Workonomics approach of Strack / Villis is re-organizing residual income measures looking on the impact of human capital as an intangible resource instead of tangible assets, measured as capital employed. Bringing in value added per person, cost per person and head count we can consider residual income from a human based view instead of a capital based view.
The empirical study presented in this paper is based on data of COMPUSTAT , Hoppenstedt and Bloomberg and examines four samples of companies. The DAX-30 sample for the Top30 German blue chips stands for mostly capital intensive companies of traditional “old-economy” industries. The second sample contents all of the 2800 companies on the NYSE delivering information on personnel costs, resulting in a final sample of 64 companies of primarily “old-economy” industries. The third sample holds 53 companies of “new economy” industries of the German CDAX industries media, technology, pharmaceutical/health, software and telecommunication which indicated in an earlier empirical study that human capital is their most relevant critical resource (see Günther / Beyer / Menninger (2003)). Finally, we created a combined sample of all three sub-samples.
We conducted diverse multivariate regression analyses to explain the impact of human and capital based residual income measures on Total Shareholder Returns (TSR) and Total Business Returns (TBR) for a three year and five year window and for all single years. Diverse statistical tests to prove the soundness of the regression models were applied (adjusted R2, F-Test, T-Test, standardized Beta regression coefficient).
The results show a significant correlation between human based residual income figures and capital market returns. The explanation power is especially strong for the CDAX sample of “new economy” companies. For these companies the human based residual income figures have a higher impact than the capital based figures. For the DAX sample we can show that integrating the human based view can increase the explanation power of capital based residual income figures. For the U.S. sample of the NYSE a significant correlation had to be rejected with the existing data.

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