On the Economic Implications of Human Capital Disclosures: Evidence from the SEC’s Mandatory Disclosure Requirements

Abstract

This study examines the economic implications of human capital disclosure (HCD) on corporate value. Utilizing a lexicon developed through advanced machine learning techniques, specifically word embedding models, we quantify firm-level HCD by measuring the proportion of discussions dedicated to human capital topics in quarterly earnings conference calls. Our analysis explores how these disclosures influence corporate value, as measured by Tobin's Q. We leverage the introduction of the Securities and Exchange Commission's (SEC) 2020 amendment to Regulation S-K, which mandates firms to discuss their human capital management practices, as a natural experiment to investigate whether the relationship between HCD and corporate value differs before and after this regulatory change. Additionally, we assess whether the presence of a Chief Human Resources Officer (CHRO) moderates the impact of HCD on firm valuation. We also examine the moderating effects of other governance mechanisms, such as the presence of female directors and female CEOs, on the HCD–corporate value relationship. Our findings reveal a robust positive association between human capital disclosures and corporate value, indicating that investors value transparency in human capital management. The presence of a CHRO and other governance mechanisms do not significantly alter this relationship. Moreover, the SEC's regulation did not significantly change the impact of HCD on corporate value, suggesting that investors may have already incorporated human capital considerations into their evaluations prior to the mandate. These insights contribute to the broader discourse on corporate transparency and accountability, highlighting the strategic importance of human capital disclosures in enhancing corporate value and informing stakeholder engagement.