Organization capital and the cross-section of expected returns

Andrea L. Eisfeldt*, Dimitris Papanikolaou

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

175 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)1365-1406
Number of pages42
JournalJournal of Finance
Volume68
Issue number4
DOIs
StatePublished - Aug 2013

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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