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Key Human Capital

67 Pages Posted: 23 Nov 2011 Last revised: 3 Sep 2015

Ryan D. Israelsen

Michigan State University - Department of Finance

Scott E. Yonker

Cornell University - Dyson School of Applied Economics and Management

Date Written: June 20, 2015

Abstract

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.

Keywords: human capital, risk, key employees, life insurance, innovation, disclosure

JEL Classification: G32, J24, O31, O32

Suggested Citation

Israelsen, Ryan D. and Yonker, Scott E., Key Human Capital (June 20, 2015). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1962910 or http://dx.doi.org/10.2139/ssrn.1962910

Ryan D. Israelsen (Contact Author)

Michigan State University - Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

Scott E. Yonker

Cornell University - Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States

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