Publication Date

July 1992


Building upon the tenets of Signaling Theory, Spence (1974), this paper introduces the concept of human resource management reputation signals and examines the effects of these signals on the financial perfomance of over 500 organizations. Numerous human resource, and overall corporate, reputation signals which have appeared in the popular business press are examined to ascertain their effects on two performance measures, the abnormal shareholder returns which occur either side of the announcement of these signals and the annual returns to shareholders in the year in which they are made public.

In the end, it appears that is more imponant to utilize ones human resources effectively than it is to be included on the "best" or "most admired" lists of the various business observers who create and disseminate these reputation signals. Indeed, the vast majority of the corporate and human resource reputation signals studied had no effect on either shon or long term performance. However, a human resource management effectiveness indicator (net income per employee) was observed to be positively related to the annual shareholder return performance measure suggesting that it is better to be good than to just look good.


Suggested Citation
Hannon, J. M., & Milkovich, G. T. (1992). Buy the book but not the stock: The relationship between human resource reputation and corporate performance (CAHRS Working Paper #92-32). Ithaca, NY: Cornell University, School of Industrial and Labor Relations, Center for Advanced Human Resource Studies.