The financial consequences of human capital disclosure as part of integrated reporting

Purpose The purpose of this paper is to analyse the financial consequences of the level of human capital (HC) information disclosed by firms through integrated reports. Specifically, this work examines the effect of HC information on the cost of capital and firm value. Design/methodology/approach A manual content analysis is used to measure the level of HC information contained in integrated reports. A fixed-effects regression model is used to analyse 375 observations (a balanced panel of 125 firms for the period 2017-2019) and test the financial consequences of HC disclosure. Findings The empirical outcomes indicate that HC disclosure has a significant and negative effect on the cost of capital and a positive impact on firm value. Our results show that companies can reduce investors' perceived firm risk by improving HC disclosure, leading to a lower cost of capital. Moreover, our findings support the notion that increased levels of HC disclosure are linked to firms' improved access to external financial resources, consequently enhancing firm value. Originality/value This study is the first contribution to examine the financial consequences of HC disclosure and is one of the first to examine the level of HC information within integrated reports.