Digital Human Capital and Management Decision-Making: Evidence from Management Earnings Forecasts

Abstract:
This study examines the relation between digital human capital (defined as firms’ stock of knowledge, skills, and abilities of individuals regarding digital technologies) and management forecast accuracy. Using data from 4,313 firm-years over 2008-2020, we find a positive and economically significant relation between the intensity of digital human capital and management forecast accuracy. This relation remains robust in our instrumental variable tests, change analysis, and other sensitivity checks. Our study also indicates that the impact of digital human capital is contingent on a firm’s IT infrastructure and environmental uncertainty. Digital human capital has a more pronounced impact on management forecast accuracy for firms with better IT infrastructure and operating in highly volatile environments. Furthermore, we find that digital human capital positively affects the speed of earnings announcement after fiscal year-end and reduces the number of internal control weaknesses. These suggest that digital human capital plays an important role in improving internal information quality and dissemination.