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Author: | Abdel-khalik, A.R. |
Title: | Self-sorting, incentive compensation and human-capital assets |
Journal: | European Accounting Review
2003 : VOL. 12:4, p. 661-697 |
Index terms: | Accounting Human resource management Human capital Compensation Labour Skills Models |
Language: | eng |
Abstract: | Skilled labour has gained significance as a production factor in the age of information technology, but accounting does not recognize human capital as an asset that contributes to the firm's earning power. This paper suggests a method to develop a latent index to proxy the managerial-skill component of human capital. The empirical analysis uses data on compensation of executive members of the board of directors, their personal attributes (experience , risk aversion etc.), firm-specific variables (profitability growth rates etc.), and type of industry. The extent to which equity markets value the predicted labour skills shows that investors in the marketplace recognize human capital even though accounting does not. The valuation coefficient on the variable imputed for human capital is significant for all years examined. This study contributes to the literature by showing that relative incentive compensation is a viable surrogate for human capital defined as the skills embodied in people. |
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