Do rating agencies impound workforce human capital information into default risk assessments?

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Mali, Dafydd ORCID: https://orcid.org/0000-0003-3582-2429 and Lim, Hyoung-joo (2023) Do rating agencies impound workforce human capital information into default risk assessments? Accounting Forum. ISSN 0155-9982

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Abstract

No accounting policy exists to mandate that employee-level human capital (ELHC) must be included on Annual Reports. Because structured ELHC information is rare, the association between ELHC and credit ratings (risk) is not demonstrated in the extant literature. South Korea is a unique instance where ELHC information is included on Annual Reports as a rule. Using a sample of 9,273 Korean listed firm-year observations from 2011-2020, we demonstrate that employee tenure, a ELHC proxy, has a positive association with credit ratings. The results infer that credit rating agencies interpret that employee tenure improves a firm's potential to survive a business cycle. The study also demonstrates that continuous employment has a more positive effect on credit ratings for NonBig4 and smaller clients/firms, compared to Big4 and larger clients/firms. The study contributes to the literature by demonstrating that firms that retain employees are less likely to default, implying that if firms look after employees, there are economic advantages. From a policymaking perspective, the study demonstrates the information advantage of reporting non-financial ELHC information on Annual Reports, on a structured/numerical basis.

Item Type: Article
Additional Information: Publisher Copyright: © 2023 University of South Australia.
Uncontrolled Keywords: continuous employment tenure,risk,human capital,non-financial reporting,accounting,finance ,/dk/atira/pure/subjectarea/asjc/1400/1402
Faculty \ School: Faculty of Social Sciences > Norwich Business School
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Depositing User: LivePure Connector
Date Deposited: 23 Aug 2024 09:30
Last Modified: 25 Sep 2024 18:03
URI: https://ueaeprints.uea.ac.uk/id/eprint/96341
DOI: 10.1080/01559982.2023.2235873

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