Capital Share Dynamics When Firms Insure Managers

55 Pages Posted: 9 Jul 2016 Last revised: 14 Jul 2017

Barney Hartman-Glaser

University of California, Los Angeles (UCLA) - Anderson School of Management

Hanno N. Lustig

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Mindy Zhang Xiaolan

University of Texas, Austin - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: April 22, 2017

Abstract

Although the aggregate capital share for U.S. firms has increased, the firm-level capital share has decreased on average. The divergence is due to the largest firms. While these mega-firms now produce a larger output share, their labor compensation has not increased proportionately. We develop a model in which firms insure workers against firm-specific shocks. More productive firms allocate more rents to shareholders, while less productive firms endogenously exit. Increasing firm-level risk delays the exit of less productive firms and increases the measure of mega-firms, raising the aggregate capital share and lowering it on average. We present evidence supporting this mechanism.

Keywords: Idiosyncratic Risk, Selection, Capital Share, Labor Share, National Income Accounting, Selection

Suggested Citation

Hartman-Glaser, Barney and Lustig, Hanno N. and Xiaolan, Mindy Zhang, Capital Share Dynamics When Firms Insure Managers (April 22, 2017). Stanford University Graduate School of Business Research Paper No. 16-35. Available at SSRN: https://ssrn.com/abstract=2807093 or http://dx.doi.org/10.2139/ssrn.2807093

Barney Hartman-Glaser

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

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

Hanno N. Lustig (Contact Author)

Stanford Graduate School of Business ( email )

Stanford GSB
655 Knight Way
Stanford, CA California 94305-6072
United States
3108716532 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Mindy Z. Xiaolan

University of Texas, Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States

HOME PAGE: http://sites.google.com/site/xiaolanmindyzhang/

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