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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