Essay 1 Abstract: Prior studies show that equity value has convex relation with accounting profitability due to the active role of management (Burstaghler and Dichev 1997; Zhang 2000). This paper extends these studies by modeling value generation through investment in human capital with learning capability. The model predicts that (1) investment in human capital has a positive relation with the change of labor productivity, (2) future earnings change has a positive relation with current change in labor productivity, and (3) equity value has a convex relation with the change of labor productivity, and this convex relation is stronger for technology industries with greater scope for learning effects. I estimate the firm’s human capital investment using the industry pay from Quarterly Cens...[ Read more ]

Essay 1 Abstract: Prior studies show that equity value has convex relation with accounting profitability due to the active role of management (Burstaghler and Dichev 1997; Zhang 2000). This paper extends these studies by modeling value generation through investment in human capital with learning capability. The model predicts that (1) investment in human capital has a positive relation with the change of labor productivity, (2) future earnings change has a positive relation with current change in labor productivity, and (3) equity value has a convex relation with the change of labor productivity, and this convex relation is stronger for technology industries with greater scope for learning effects. I estimate the firm’s human capital investment using the industry pay from Quarterly Census of Employment and Wages (QCEW) by the US Bureau of Labor Statistics for the period from 1975 to 2019 as the firm’s average employee pay and the number of employees disclosed in annual report, and the empirical results support these predictions. This study has implications for accounting-based valuation and disclosures about corporate investment in human capital.

Keywords: Human Capital. Labor productivity, Learning, Equity Value

Data Availability: Data used in this study are available from public sources.

Essay 2 Abstract: This study provides evidence on the effects of financing, skill-based innovation on the growth of employee pay. Using the industry pay from Quarterly Census of Employment and Wages (QCEW) by the US Bureau of Labor Statistics for the period from 1987 to 2019 as proxy for the firm's average employee pay, I find that the growth of employee pay has a positive relation with growth of labor productivity and equity financing but has no relation with debt financing. In addition, I find that growth of employee pay has a positive relation with equity return, and this positive relation is stronger for firms with high capital/labor intensity or wage rate, consistent with wealth sharing between suppliers of human capital and suppliers of financial capital based on the bargaining power of labor. My results are robust to industry level analyses. Overall, the empirical results suggest that equity financing and skill-based innovation have contributed to the growth of employee pay in the recent decades.

Keywords: Equity finance; Growth of employee pay, Income inequality; Human capital.

Data Availability: Data used in this study are available from public sources.