Abstract:

How does a firm's human capital impact financial performance? By directly observing the employment and education trajectories of a significant proportion of U.S. public company employees from 1990 to the present, we explore the relationship between performance and two aspects of human capital: turnover and skills. First, we find that firms with higher employee turnover experience significantly worse future returns. A long-short strategy based on employee turnover with a three-month lag lag generates an excess compounded annual return of 14.3%. Second, firms with a larger emphasis on sales-oriented skills show better subsequent performance, whereas firms with more focus on administrative skills underperform. The effects of skills are heterogeneous across industries, with a larger premium on web development in Information, a higher premium on insurance in Manufacturing, and no benefit from sales-oriented skills in Finance.

Notes:

Winner, Jack Treynor Prize from the Institute for Quantitative Research in Finance

Second Place, 2017 PanAgora Asset Management Dr. Richard A. Crowell Memorial Prize