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The effects of human resource management decisions on shareholder value

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  • John M. Abowd
  • George T. Milkovich
  • John M. Hannon

Abstract

Using an event study methodology, the authors investigate whether human resource decisions of firms (such as decisions concerning compensation and benefits or staffing) announced in the Wall Street Journal in 1980 and 1987 discernibly affected either the level or variation of abnormal total shareholder return. They find no consistent pattern of increased or decreased valuation in response to any of five categories of HR announcements, even after controlling for the likely effect of such announcements on total compensation costs. On the other hand, announcements of permanent staff reductions and shutdowns or relocations were associated with significant increases in the variation of abnormal total shareholder return around the announcement date, which indicates that HR decisions in those two categories do affect shareholders' predictions of firms' performance. (Abstract courtesy JSTOR.)

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Bibliographic Info

Article provided by ILR Review, Cornell University, ILR School in its journal ILR Review.

Volume (Year): 43 (1990)
Issue (Month): 3 (February)
Pages: 203-236

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Handle: RePEc:ilr:articl:v:43:y:1990:i:3:p:203-236

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References

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  1. Abowd, John M, 1989. "The Effect of Wage Bargains on the Stock Market Value of the Firm," American Economic Review, American Economic Association, vol. 79(4), pages 774-800, September.
  2. Joseph S. Tracy, 1986. "An Empirical Test of an Asymmetric Information Model of Strikes," NBER Working Papers 1870, National Bureau of Economic Research, Inc.
  3. Brian E. Becker, 1987. "Concession bargaining: The impact on shareholders' equity," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 40(2), pages 268-279, January.
  4. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
  5. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
  6. Tehranian, Hassan & Waegelein, James F., 1985. "Market reaction to short-term executive compensation plan adoption," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 131-144, April.
  7. Baker, George P & Jensen, Michael C & Murphy, Kevin J, 1988. " Compensation and Incentives: Practice vs. Theory," Journal of Finance, American Finance Association, vol. 43(3), pages 593-616, July.
  8. Brian E. Becker & Craig A. Olson, 1986. "The impact of strikes on shareholder equity," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 39(3), pages 425-438, April.
  9. Ruback, Richard S & Zimmerman, Martin B, 1984. "Unionization and Profitability: Evidence from the Capital Market," Journal of Political Economy, University of Chicago Press, vol. 92(6), pages 1134-57, December.
  10. Brickley, James A. & Bhagat, Sanjai & Lease, Ronald C., 1985. "The impact of long-range managerial compensation plans on shareholder wealth," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 115-129, April.
  11. Thompson, Rex, 1985. "Conditioning the Return-Generating Process on Firm-Specific Events: A Discussion of Event Study Methods," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(02), pages 151-168, June.
  12. Joseph S. Tracy, 1988. "Testing Strategic Bargaining Models Using Stock Market Data," NBER Working Papers 2754, National Bureau of Economic Research, Inc.
  13. Fama, Eugene F, et al, 1969. "The Adjustment of Stock Prices to New Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(1), pages 1-21, February.
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Citations

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Cited by:
  1. repec:fth:prinin:417 is not listed on IDEAS
  2. Henry S. Farber & Kevin Hallock, 1999. "Have Employment Reductions Become Good News for Shareholders? The Effect of Job Loss Announcements on Stock Prices, 1970-97," Working Papers 796, Princeton University, Department of Economics, Industrial Relations Section..
  3. Pinoli, Sara, 2007. "Employment Protection and Labor Productivity: Positive or Negative?," MPRA Paper 11775, University Library of Munich, Germany.
  4. Peter Cappelli, 2000. "Examining the Incidence of Downsizing and Its Effect on Establishment Performance," NBER Working Papers 7742, National Bureau of Economic Research, Inc.
  5. Ian Worthington, 2009. "Corporate Perceptions of the Business Case for Supplier Diversity: How Socially Responsible Purchasing can ‘Pay’," Journal of Business Ethics, Springer, vol. 90(1), pages 47-60, November.
  6. John M. Abowd, 1989. "Does Performance-Based Managerial Compensation Affect Subsequent Corporate Performance?," NBER Working Papers 3149, National Bureau of Economic Research, Inc.
  7. Butler, Maureen G. & Callahan, Carolyn M., 2014. "Human resource outsourcing: Market and operating performance effects of administrative HR functions," Journal of Business Research, Elsevier, vol. 67(2), pages 218-224.
  8. Abagail McWilliams & Donald S. Siegel & Patrick M. Wright, 2005. "Corporate Social Responsibility: Strategic Implications," Rensselaer Working Papers in Economics 0506, Rensselaer Polytechnic Institute, Department of Economics.
  9. Anne Stévenot-Guéry & Loris Guéry, 2006. "L’influence des Capital Investisseurs sur la gestion des ressources humaines des entreprises financées:dimensions, enjeux et limites," Working Papers CREGO 1060502, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations.
  10. Boyer, Tristan, 2002. "Gouvernement d'entreprise et décisions d'emploi
    [Corporate Governance and employment decisions]
    ," MPRA Paper 10287, University Library of Munich, Germany.
  11. Jérôme Hubler & Pierre-Xavier Meschi & Géraldine Schmidt, 2004. "Annonces de suppressions d’emplois et valeur boursière de l’entreprise," Revue Finance Contrôle Stratégie, revues.org, vol. 7(4), pages 107-142, December.
  12. Greer, Charles R. & Ireland, Timothy C. & Wingender, John R., 2001. "Contrarian human resource investments and financial performance after economic downturns," Journal of Business Research, Elsevier, vol. 52(3), pages 249-261, June.
  13. Sentis, Patrick, 2001. "Sous-investissement et suppression d’effectifs : vers une réduction des coûts d’agence," L'Actualité Economique, Société Canadienne de Science Economique, vol. 77(1), pages 5-26, mars.
  14. Bénédicte Reynaud & Arnaud Degorre, 2007. "Workforce reduction and firm performance: a comparison between French publicly-listed and non-listed companies, 1994-2000," PSE Working Papers halshs-00588011, HAL.
  15. Bénédicte Reynaud, 2010. "Workforce reduction and firm performance: Evidence from French firm data," PSE Working Papers halshs-00564828, HAL.
  16. Farber, Henry S. & Hallock, Kevin F., 2009. "The changing relationship between job loss announcements and stock prices: 1970-1999," Labour Economics, Elsevier, vol. 16(1), pages 1-11, January.
  17. Beat Reber & Bob Berry & Steve Toms, 2005. "Firm resources and quality signalling: evidence from UK initial public offerings," Applied Financial Economics, Taylor & Francis Journals, vol. 15(8), pages 575-586.

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