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The Effects of Human Resource Management Decisions on Shareholder Value

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

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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File URL: http://www.nber.org/papers/w3148.pdf
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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
Note: LS
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  1. Tracy, Joseph S, 1987. "An Empirical Test of an Asymmetric Information Model of Strikes," Journal of Labor Economics, University of Chicago Press, vol. 5(2), pages 149-73, April.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. Joseph S. Tracy, 1988. "Testing Strategic Bargaining Models Using Stock Market Data," NBER Working Papers 2754, National Bureau of Economic Research, Inc.
  7. 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.
  8. 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.
  9. 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.
  10. 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.
  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. 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.
  13. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
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