Organizational Capital, Corporate Leadership, and Firm Dynamics
61 Pages Posted: 23 Aug 2017 Last revised: 30 Aug 2019
Date Written: February 4, 2019
We argue that economists have studied the role of management from three perspectives: contingency theory (CT), an organization-centric empirical approach (OC), and a leader-centric empirical approach (LC). To reconcile these three perspectives, we augment a standard dynamic firm model with organizational capital, an intangible, slow-moving, productive asset that can only be produced with the direct input of the firm's leadership and that is subject to an agency problem. We characterize the steady state of an economy with imperfect governance, and show that it rationalizes key findings of CT, OC, and LC, as well as generating a number of new predictions on performance, management practices, CEO behavior, CEO compensation, and governance.
Keywords: Organizational Capital, Leadership, Management
JEL Classification: D21
Suggested Citation: Suggested Citation