Key Human Capital

Abstract:     
Using a novel measure from corporate owned life insurance policies we find that firms with substantial "key" human capital are risky. "Key man" life insurance policies insure the death of a key employee, where the firm is the beneficiary, thereby placing a dollar amount on the insured employee's firm-specific human capital. Firms that disclose exposure to key employee risk tend to be younger, smaller, growth firms with few tangible assets and high investment in R&D. Idiosyncratic volatility is higher for these firms and following the announcement of key employee departures, affected firms lose 3% of their value. Additionally, key human capital intensive firms earn positive abnormal returns in the cross-section.

Number of Pages in PDF File: 44

Keywords: human capital, asset pricing, risk, stock returns, seasonality, key man life insurance, life insurance, key human capital

JEL Classification: G12, J24, J33, J41

working papers series