Purpose: Although the importance of human capital (HC) in firm valuecreation is firmly established in the literature, the level of emphasis placedon human capital disclosure (HCD) by preparers of financial statements andsell‐side analysts is minimal. The purpose of this paper is to address thisdilemma by critically analysing the conceptualisation of HC in disclosureliterature and introduce a more suitable explanation.
Design/methodology/approach: The paper begins by reviewing the literature on intellectualcapital disclosure (ICD) to examine the level of HCD in various company mediaand the use of such information by the capital market. It then criticallyanalyses the conceptualisation of HC in those studies with a view to forming anopinion about the adequacy of that conceptualisation. Then the resource‐basedview is justified as providing a more appropriate conceptualisation of HC tomeet demands of the capital market.
Findings: Substantial ICD literature conceptualises HC using HC theoryas a collection of knowledge and competences possessed by employeesindividually and collectively in firms. This has resulted in HC disclosurescores being considerably low compared to external and internal capitaldisclosure and does not portray HC in a way that is useful to the capitalmarket. A resource‐based perspective enables HC to be depicted in a way thatclosely resembles the value creation potential of firms' employees.
Practicalimplications: Guidance isprovided for future HCD and ICD studies to operationalise HC and to reflect itsvalue creation potential by encompassing not only the firm specific stock ofknowledge and capabilities of employees, but also the strategic HC managementpractices. Thus the corporate culture and the idiosyncratic systems andpractices of the firm which are in place are enabled in to reaping the benefitsof these.
Originality/value: ICD literature portrays HC as the least importantintellectual capital subcategory. However, anecdotal evidence suggestsotherwise. This study is the first attempt to clarify and provide anexplanation to this dilemma.