TY - JOUR
T1 - The Fragility of Organization Capital
AU - Boguth, Oliver
AU - Newton, David
AU - Simutin, Mikhail
N1 - Publisher Copyright:
©
PY - 2022/5/1
Y1 - 2022/5/1
N2 - Firms with high levels of organization capital (OK), a firm-specific production factor provided by key employees, are known to be risky and earn high stock returns. We argue that fragility of OK (i.e., its sensitivity to potential disruptions) is an independently important dimension of this risk. We proxy for fragility by the size of the top management team and show that firms with small teams outperform firms with big teams by 5% annually. The return spread increases in the level of OK and correlates with the outside options of top executives. Further supporting our interpretation, shocks to team composition from unexpected deaths of chief executive officers cause larger value losses in smaller teams.
AB - Firms with high levels of organization capital (OK), a firm-specific production factor provided by key employees, are known to be risky and earn high stock returns. We argue that fragility of OK (i.e., its sensitivity to potential disruptions) is an independently important dimension of this risk. We proxy for fragility by the size of the top management team and show that firms with small teams outperform firms with big teams by 5% annually. The return spread increases in the level of OK and correlates with the outside options of top executives. Further supporting our interpretation, shocks to team composition from unexpected deaths of chief executive officers cause larger value losses in smaller teams.
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U2 - 10.1017/S0022109021000144
DO - 10.1017/S0022109021000144
M3 - Article
AN - SCOPUS:85102060593
SN - 0022-1090
VL - 57
SP - 857
EP - 887
JO - Journal of Financial and Quantitative Analysis
JF - Journal of Financial and Quantitative Analysis
IS - 3
ER -