Key Human Capital
Ryan D. Israelsen
Indiana University - Kelley School of Business - Department of Finance
Scott E. Yonker
Cornell University - Dyson School of Applied Economics and Management
June 20, 2015
Journal of Financial and Quantitative Analysis (JFQA), Forthcoming
Firms whose human capital is concentrated in a few irreplaceable employees lack diversification in their human capital stock, exposing them to key human capital risk. Using "key man life insurance" disclosures to measure this risk, we show that exposed firms are riskier. These younger, smaller, growth firms have abnormally high volatility and following announcement of key employee departures, the most exposed firms lose 8% of their value. Key employees tend to be highly educated. They are four times more likely to hold Ph.D.'s than top managers, and firms with key human capital are more innovative.
Number of Pages in PDF File: 67
Keywords: human capital, risk, key employees, life insurance, innovation, disclosure
JEL Classification: G32, J24, O31, O32
Date posted: November 23, 2011 ; Last revised: September 3, 2015
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