Human capital is a critically important source of corporate value creation in the modern economy, yet disclosures related to what executives commonly refer to as their “most important asset” have been extremely limited relative to those of other asset classes. This was supposed to change in November 2020 when the SEC’s amendment to Regulation S-K took effect. The new rules require that filers provide expanded discussion related to the firm’s human capital (HC) as part of Item 1 (i.e., the business description section) of their 10-K filing. The new rules are principles-based, however, so they allow for a tremendous amount of discretion without stipulating any specifics as to what companies should disclose. Early critics expressed concern that this approach would lead to too much heterogeneity in HC disclosures, that it was fraught with the potential for “greenwashing,” and that it would otherwise not yield the comparable quantitative data that investors need to properly assess corporate performance.

Our study provides the first comprehensive descriptive evidence required to assess the efficacy of the new regulation that has been subject to widescale criticisms in the investment community. We use textual analysis to extract the linguistic features and numerical intensity of HC disclosures for more than 3,000 unique public companies (i.e., all 10-K filers with corresponding financial data available), each reporting for the first time under the new regulation.

A number of interesting, stylized facts emerge from our analysis. First, consistent with anecdotal accounts, we provide systematic evidence that there is tremendous cross-sectional variation in the amount, numerical intensity, tone, readability, and similarity of HC disclosures both in absolute terms, and when benchmarked against the rest of the contents of the firm’s Item 1 disclosures. Although this may seem like good news from a regulatory perspective to the extent that it suggests that firms are not providing totally uninformative boilerplate disclosures, a less sanguine interpretation of the evidence is that the low level of similarity—even for firms within the same industry—will make it harder for investors to compare HC performance across firms.

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