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Human Capital and Stock Returns: Is the Value Premium an Approximation for Return on Human Capital?


  • Bo Hansson

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      The author is from the School of Business, Stockholm University. He is especially grateful to Erik Eklund at SIX AB for providing all data to this study. He is also grateful to Eric Flamholtz for giving him the opportunity to pursue part of this work at the Anderson Graduate School of Management, UCLA. He thanks an anonymous referee for useful comments which have substantially improved the paper. He also thanks Lars Nordén, Thomas Hartman, Jan-Erik Gröjer, Niclas Hagelin, Ulf Johanson, participants at the 24th annual congress of the European Accounting Association, 2001, Athens, and participants at the 2000 workshop on empirical finance, School of Business, Stockholm University for comments and suggestions on this paper. Any errors that remain are solely the author's responsibility. This research was partly financed by Svenska Handelsbankens Research Funds and the Swedish Institute, which are gratefully acknowledged. (Paper received May 2002, revised and accepted November 2002)

Bo Hansson, School of Business, Stockholm University, 106 91 Stockholm, Sweden.


This study, using a direct measure of the wage growth rate within firms, examines the value premium in relation to human capital. The results suggest that the dispersion in wage growth in value and growth stocks explains a large portion of the differences in stock returns. It appears that value stocks are less exposed to shocks in rents to human capital. Differences in labor force characteristics among value and growth stocks also proved to be an important factor in determining both the impact of future changes in labor income growth rate and firm value. The present findings are understood to mean that the ability of investors to forecast the dispersion in wage growth in firms is limited.