We investigate whether human capital disclosures are associated with firms’ profitability and value, and analyse the impact of a recent U.S. Securities and Exchange Commission (SEC) change in mandated human capital disclosure. We examine the disclosures of S&P 500 firms from 2012 to 2021 and create a disclosure score based on twenty-nine variables associated with five distinct human capital dimensions.
Funding
We have three main results. First, human capital disclosure is positively associated with firms’ profitability and value. Second, the change in the SEC's required human capital disclosure is associated with an increase in firms’ human capital disclosure, and this change starts as soon as the SEC announces its intentions. Third, from the year 2016 (when the SEC initiated discussions about the amendment) to 2019 there was a noticeable increase in the association between disclosure and firm financial performance. However, this association disappears after the implementation of the mandated changes (2020 and 2021). Nevertheless, we must recognise that the COVID-19 pandemic substantially impacted this period. Several robust checks further support our findings – these include the analysis of alternative disclosure scores and sub-scores, the use of lagged dependent variables, components, and the estimation of a system of equations.
