Matching Capital and Labor
Stanford Graduate School of Business; National Bureau of Economic Research (NBER)
Jules H. van Binsbergen
University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)
Northwestern University - Kellogg School of Management
September 19, 2014
We establish an important role for the firm by studying capital reallocation decisions of mutual fund firms. At least 30% of the value mutual fund managers add can be attributed to the firm's role in efficiently allocating capital amongst its mutual fund managers. We find no evidence of a similar effect when a firm hires managers from another firm. We conclude that an important reason why firms exist is the private information that derives from the firm's ability to better assess the skill of its own employees and the use of that information to efficiently allocate capital to labor.
Number of Pages in PDF File: 34
Keywords: Matching, Capital Allocation, Theory of the Firm
Date posted: March 23, 2014 ; Last revised: September 22, 2014
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