Earnings Predictability and Value Relevance: Role of Employee Expenses

Employees are an important firm resource and a source of intellectual capital; hence, they drive firm performance. Employee expenses capture information about employees and are one of the largest earnings components. We analyze whether this earnings component contributes incremental information content over and above that of earnings alone. The analysis of the data from 98 firms during the 1383-1391 period showed that employee expenses contribute more strongly to the prediction of future performance. The results confirm the importance of employee expenses from an accounting perspective.