Key Human Capital
Ryan D. Israelsen
Indiana University - Department of Finance
Scott E. Yonker
Indiana University Bloomington - Department of Finance
March 19, 2014
Firms whose human capital is concentrated in a few irreplaceable key employees lack diversification in their human capital, exposing them to key human capital risk. Using "key man life insurance" disclosures to measure this risk, we show that exposed firms are more risky. These firms are younger, smaller, growth firms with low asset tangibility and their key employees are four times more likely than CEOs to have Ph.D's. They have abnormally high volatility and following announcements of key employee departures, the most exposed firms lose 8% of their value. Firms with the greatest key human capital risk earn abnormal relative returns.
Number of Pages in PDF File: 49
Keywords: human capital, risk, key employees, life insurance, disclosure
JEL Classification: G32, J24working papers series
Date posted: November 23, 2011 ; Last revised: March 20, 2014
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