Organization Capital and the Cross-Section of Expected Returns

53 Pages Posted: 14 Mar 2009 Last revised: 20 Mar 2013

Date Written: January 1, 2013


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.

Suggested Citation

Eisfeldt, Andrea L. and Papanikolaou, Dimitris, Organization Capital and the Cross-Section of Expected Returns (January 1, 2013). Journal of Finance, Forthcoming, Available at SSRN: or

Andrea L. Eisfeldt

UCLA Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

HOME PAGE: http://

Dimitris Papanikolaou (Contact Author)

Northwestern University - Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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