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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

We examine the effects of selected human resource management decisions on the abnormal change in total shareholder return. Announcements of human resource decisions are classified into five types--general HR system announcements, compensation and benefits, staffing, shutdowns and relocations, and miscellaneous. Using an event study methodology we investigate whether any of these HR decisions had a discernible effect on either the level or variation of abnormal total shareholder return. We find no consistent pattern of increased or decreased valuation in response to the different types of HR announcements, even after controlling for the likely effect of such announcements on total compensation costs. We do find substantially increased variation in abnormal total shareholder return around the announcement date, which indicates that HR decisions do provide information to the stock market. The events associated with increased variation in total shareholder value are permanent staff reductions and shutdown/relocations. The absence of consistent valuation effects combined with the evidence of increased variation in shareholder value may be attributed to uncontrolled firm-specific factors, the categorization of the HR events or, simply, to the unique interpretations the market placed upon these events.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3148.

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Date of creation: Oct 1989
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Publication status: published as Industrial and Labor Relations Review, Vol. 43, no. 3 (February 1990): 203S-236S.
Handle: RePEc:nbr:nberwo:3148

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  1. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
  2. Joseph S. Tracy, 1988. "Testing Strategic Bargaining Models Using Stock Market Data," NBER Working Papers 2754, National Bureau of Economic Research, Inc.
  3. 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.
  4. Joseph S. Tracy, 1986. "An Empirical Test of an Asymmetric Information Model of Strikes," NBER Working Papers 1870, National Bureau of Economic Research, Inc.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. 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.
  11. 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.
  12. 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.
  13. 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.
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Cited by:
  1. 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.
  2. 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.
  3. Pinoli, Sara, 2007. "Employment Protection and Labor Productivity: Positive or Negative?," MPRA Paper 11775, University Library of Munich, Germany.
  4. Abagail McWilliams & Donald S. Siegel & Patrick M. Wright, 2006. "Corporate Social Responsibility: Strategic Implications," Journal of Management Studies, Wiley Blackwell, vol. 43(1), pages 1-18, 01.
  5. 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.
  6. Peter Cappelli, 2000. "Examining the Incidence of Downsizing and Its Effect on Establishment Performance," NBER Working Papers 7742, National Bureau of Economic Research, Inc.
  7. 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.
  8. 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.
  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. Henry S. Farber & Kevin F. Hallock, 1999. "Have Employment Reductions Become Good News for Shareholders? The Effect of Job Loss Announcements on Stock Prices, 1970-97," NBER Working Papers 7295, National Bureau of Economic Research, Inc.
  11. 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.
  12. 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.
  13. 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.
  14. Bénédicte Reynaud, 2010. "Workforce reduction and firm performance: Evidence from French firm data," PSE Working Papers halshs-00564828, HAL.
  15. John M. Abowd, 1989. "Does Performance-Based Managerial Compensation Affect Subsequent Corporate Performance?," NBER Working Papers 3149, National Bureau of Economic Research, Inc.
  16. Boyer, Tristan, 2002. "Gouvernement d'entreprise et décisions d'emploi
    [Corporate Governance and employment decisions]
    ," MPRA Paper 10287, University Library of Munich, Germany.
  17. repec:fth:prinin:417 is not listed on IDEAS

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