Human Capital Investment and Firm Value
Stuart School of Business research presentation by: Associate Professor of Finance Yiwei Fang and Yanfeng Li, Stuart Ph.D. student
Human Capital Investment and Firm Value: Evidence from Dual-class Shares Firms
- Associate Professor of Finance Yiwei Fang
- Yanfeng Li, Stuart Ph.D. student
Abstract:
Our paper examines the interaction effect of human capital investment in firms with dual-class shares (DCS) structure. We find that although more input in humans, measured by KLD ratings, can enhance the valuation of single-class (SCS) firms, human capital investment in DCS firms is not valued by the market, but even hurts firm value. The more investment in humans, the more DCS firms suffer the valuation discount. This result is consistent with the prediction of agency theory. The management entrenchment effect in DCS firms causes valuation discount when managers can transfer private benefit through investing in humans. Overall, our paper provides the evidence that human capital investment plays different roles in firm value under different circumstances, especially under different ownership structure.
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