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Organization Capital and the Cross‐Section of Expected Returns
Author(s) -
EISFELDT ANDREA L.,
PAPANIKOLAOU DIMITRIS
Publication year - 2013
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12034
Subject(s) - shareholder , capital (architecture) , business , cost of capital , cash flow , key (lock) , production (economics) , cash , monetary economics , finance , economics , microeconomics , corporate governance , profit (economics) , ecology , archaeology , biology , history
ABSTRACT Organization capital is a production factor that is embodied in the firm's key talent and has an efficiency that is firm specific. Hence, both shareholders and key talent have a claim to its cash flows. We develop a model in which the outside option of the key talent determines the share of firm cash flows that accrue to shareholders. This outside option varies systematically and renders firms with high organization capital riskier from shareholders' perspective. We find that firms with more organization capital have average returns that are 4.6% higher than firms with less organization capital.