The Fragility of Organization Capital

50 Pages Posted: 2 Oct 2015 Last revised: 2 Mar 2018

See all articles by Oliver Boguth

Oliver Boguth

Arizona State University (ASU) - Finance Department

David Newton

Concordia University, Quebec - Department of Finance

Mikhail Simutin

University of Toronto - Rotman School of Management

Date Written: February 28, 2018

Abstract

Firms with high levels of organization capital, a firm-specific production factor provided by key employees, are known to be risky and earn high stock returns. We argue that fragility of organization capital -- its sensitivity to potential disruptions -- is an independently important determinant of risk. We proxy for fragility by the size of the top management team, and show that firms with small teams outperform firms with big teams by 6% annually. Supporting our interpretation, the return spread increases in the level of organization capital, and shocks to team composition from unexpected CEO deaths cause larger value losses in smaller teams.

Keywords: Organization capital, intangibles, fragility, top management team, executives, CEO deaths, stock returns, cross-sectional asset pricing

JEL Classification: G12, J24, M12, M510

Suggested Citation

Boguth, Oliver and Newton, David and Simutin, Mikhail, The Fragility of Organization Capital (February 28, 2018). Rotman School of Management Working Paper No. 2667882, 27th Annual Conference on Financial Economics and Accounting Paper, Available at SSRN: https://ssrn.com/abstract=2667882 or http://dx.doi.org/10.2139/ssrn.2667882

Oliver Boguth

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

David Newton

Concordia University, Quebec - Department of Finance ( email )

Montreal, Quebec H3G 1M8
Canada

Mikhail Simutin (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/simutin

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