Organizational Capital, Corporate Leadership, and Firm Dynamics

61 Pages Posted: 23 Aug 2017 Last revised: 30 Aug 2019

See all articles by Wouter Dessein

Wouter Dessein

Columbia Business School - Finance and Economics

Andrea Prat

Columbia Business School - Finance and Economics; Centre for Economic Policy Research (CEPR)

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Date Written: February 4, 2019

Abstract

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

Dessein, Wouter and Prat, Andrea, Organizational Capital, Corporate Leadership, and Firm Dynamics (February 4, 2019). Columbia Business School Research Paper No. 17-89, Available at SSRN: https://ssrn.com/abstract=3024285 or http://dx.doi.org/10.2139/ssrn.3024285

Wouter Dessein

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Andrea Prat (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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