Academic journal article The International Journal of Business and Finance Research

Aligning Human Capital Measurement with Corporate Value Creation: Evidence from the Taiwan Electronics Industry

Academic journal article The International Journal of Business and Finance Research

Aligning Human Capital Measurement with Corporate Value Creation: Evidence from the Taiwan Electronics Industry

Article excerpt

ABSTRACT

The aim of this study was to identify appropriate indicators of human capital and clarify the relationship between investment in human capital and corporate value. We examined the relationship between proxy variables and corporate value, using empirical models to analyze the explanatory power of human capital indicators with regard to corporate value. We found that both financial and non-financial indicators of human capital are associated with corporate value. However, this effect is more evident in companies in the electronics industry. A number of managerial implications and research suggestions are also proposed.

JEL: M12, G32

KEYWORDS: Human Capital Effectiveness, Human Capital Measurement, Transferability of Human Capital Indicators, Corporate Value

(ProQuest: ... denotes formulae omitted.)

INTRODUCTION

The advent of the knowledge economy has led to the development of resource-based theory and knowledge-based theory, which encourage companies to invest not only in hardware but also to channel resources and investment into intangible but arguably more valuable assets. By doing so, companies are better able to establish long-term competitive advantage (Wernerfelt, 1984; Barney, 1991; Grant, 1991; Peteraf, 1993; Bontis, 1999; Priem and Bulter, 2001; Schuler and Jackson, 2005). In recent years, there has been a growing gap between the book value of a company and the market value of equity (Lev, 2001). Brooking (1996) and Sveiby (1997) claimed that such gaps are engendered by insufficient coverage of financial information with regard to intangible assets, one of which is human capital. The issue of human capital remains mired in inconsistent measurements and inadequate standards of evaluation (Bontis, 2001). The measurement of human capital is often based on its contribution to the operational performance of a firm, centered on the question of efficacy.

Although most companies have realized the importance of human capital, many remain unwilling to disclose related indicators or data in order to prevent the disclosure of valuable information to rivals. The lack of an appropriate means of measurement and the limited availability of data related to human capital poses considerable challenges in the field of accounting. A knowledge-based economy exposes weaknesses in traditional accounting practices and the measurement of performance; therefore, selecting an appropriate instrument for the measurement and reporting of human capital and identifying the core characteristics of intellectual capital are of the utmost importance (Kamath, 2007; Flamholtz, Bullen and Hua, 2002). The objective of this study was to identify proxy variables in the measurement of human capital based on the "human capital indicators" proposed in earlier studies (Brooking, 1996; Roos et al., 1997; LeBlanc, Rich and Mulvey, 2000; Becker, Husield and Ulrich, 2001; Ulrich, 2005).

This study obtained empirical evidence related to the measure of human capital in the electronics industry that we believe was insufficiently tested in previous research. We examined the relationship between proxy variables and corporate value, using empirical models to analyze the explanatory power of human capital indicators for corporate value. It was our premise that such an approach could help to identify appropriate indicators of human capital, while clarifying the relationship between investment in human capital and corporate value. This study focused on the electronics industry in Taiwan. Previous researchers have demonstrated that, in the electronics industry, human capital is particularly important to the successful development and implementation of organizational strategies (Bharadwaj, 2000). The electronics industry in Taiwan has gained a reputation for rapid growth and globally competitive capabilities. In recent years, the industry has upgraded from a production orientation to an innovation orientation (Tsan and Chang, 2005). …

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