Impact of Human Capital on Firm Value: A Case Study of Pakistan

Abstract

This study estimates the value of Human Capital Index (HCI) with the help of Watson Wyatt HCI Methodology and the relationship of six HR practices (1.Total reward and Accountability 2. Collegial flexible workplace 3. Recruiting and Retention, Excellence and value, and creation 4. Communication integrity and value creation 5. Focused HR Service and Value Creation 6. Prudent use of Resources) and Market value of Pakistan Stock Exchange Companies (PXE) listed companies. We collected data from 35 sectors of 573 PXE-listed companies only 200 companies responded. The study also examines the link between human capital practices and value creation. Smart PLS is used to find a clear relationship between the usefulness of companies’ human capital practices and shareholder value creation. The correlation between HCI and Shareholder Market Value is 14.76%, less than developed countries' average correlation value. The relationship results are significant where HR practices are well performed while insignificant results are due to a lack of understanding.