The Fragility of Organization Capital
50 Pages Posted: 2 Oct 2015 Last revised: 2 Mar 2018
Date Written: February 28, 2018
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: Suggested Citation