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Quantifying human capital disclosure in China with textual analysis

Li Xie,Zhaoran Gong,Xiangyun Lu

Published 2025 in China Accounting and Finance Review

ABSTRACT

Estimates disclosure of human capital management for Chinese listed companies. Investigate the patterns of the disclosure of human capital management across industries and regions. Examine the determinants of human capital management disclosure in China. Examine the association between human capital management disclosure and firm performance. We employ natural language processing techniques on annual reports’ management discussion and analysis sections. We construct exposure measures for ten human capital management dimensions and synthesize them into one comprehensive measure of human capital management disclosure. We conduct empirical analysis on the measure using a sample of Chinese listed companies during 2009–2022. We construct a measure of human capital management disclosure for 5,153 Chinese companies during 2009–2022. We find that firms with high HCM disclosure are more labor intensive and have more cash holdings and R&D expenditure but have lower sales growth, market-to-book ratio and leverage. HCM disclosure is associated with better future accounting performance but poor future market valuation. There are substantial variations in HCM disclosure across industries, geographic regions and ownership types. HCM disclosure has increased significantly during the COVID-19 pandemic. The increased HCM disclosure and its association with firm operating performance and market valuation indicate the relevance of HCM in corporate management and underscore the need for more robust and standardized disclosure of HCM in China. Our findings support recent regulatory efforts by CSRC to enhance the transparency and accountability in HCM disclosures and advocate for more explicit and specific HCM disclosure requirements in the future. We propose a quantitative measure of human capital management disclosure, which can be modified to apply to other markets. We construct a comprehensive, ready-to-use dataset for HCM disclosure for Chinese listed companies and conduct descriptive analysis on the dataset. We identify the patterns of human capital management disclosure and its determinants in China.

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