IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v51y2023ics1544612322005232.html
   My bibliography  Save this article

Organizational capital and firm risk – Testing the outside option

Author

Listed:
  • Cook, Douglas O.
  • Via, M. Tony

Abstract

We examine organizational capital risk on a micro level by identifying 120,017 quasi-voluntary inventor moves between firms over three decades. Consistent with survey results from Eisfeldt and Papanikolaou (2013), we find that a 10% increase in organizational capital results in a 1.8% greater annual exit of firm inventors. Exit risk is higher 1) where employees are more transferable between firms and 2) among financially constrained firms that cannot compensate valuable employees competitively. Valuations are lower for firms with greater levels of inventor turnover / outflows.

Suggested Citation

  • Cook, Douglas O. & Via, M. Tony, 2023. "Organizational capital and firm risk – Testing the outside option," Finance Research Letters, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322005232
    DOI: 10.1016/j.frl.2022.103344
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612322005232
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2022.103344?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Acharya, Viral & Xu, Zhaoxia, 2017. "Financial dependence and innovation: The case of public versus private firms," Journal of Financial Economics, Elsevier, vol. 124(2), pages 223-243.
    2. Andrés Donangelo, 2014. "Labor Mobility: Implications for Asset Pricing," Journal of Finance, American Finance Association, vol. 69(3), pages 1321-1346, June.
    3. David Hirshleifer & Angie Low & Siew Hong Teoh, 2012. "Are Overconfident CEOs Better Innovators?," Journal of Finance, American Finance Association, vol. 67(4), pages 1457-1498, August.
    4. Hall, B. & Jaffe, A. & Trajtenberg, M., 2001. "The NBER Patent Citations Data File: Lessons, Insights and Methodological Tools," Papers 2001-29, Tel Aviv.
    5. Lifeng Gu & Dirk Hackbarth & Tim Johnson, 2018. "Inflexibility and Stock Returns," Review of Financial Studies, Society for Financial Studies, vol. 31(1), pages 278-321.
    6. Leonid Kogan & Dimitris Papanikolaou & Amit Seru & Noah Stoffman, 2017. "Technological Innovation, Resource Allocation, and Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(2), pages 665-712.
    7. Mark C. Anderson & Rajiv D. Banker & Surya N. Janakiraman, 2003. "Are Selling, General, and Administrative Costs “Sticky”?," Journal of Accounting Research, Wiley Blackwell, vol. 41(1), pages 47-63, March.
    8. Lamont, Owen & Polk, Christopher & Saa-Requejo, Jesus, 2001. "Financial Constraints and Stock Returns," Review of Financial Studies, Society for Financial Studies, vol. 14(2), pages 529-554.
    9. Gerard Hoberg & Gordon Phillips, 2016. "Text-Based Network Industries and Endogenous Product Differentiation," Journal of Political Economy, University of Chicago Press, vol. 124(5), pages 1423-1465.
    10. Li, Guan-Cheng & Lai, Ronald & D’Amour, Alexander & Doolin, David M. & Sun, Ye & Torvik, Vetle I. & Yu, Amy Z. & Fleming, Lee, 2014. "Disambiguation and co-authorship networks of the U.S. patent inventor database (1975–2010)," Research Policy, Elsevier, vol. 43(6), pages 941-955.
    11. Matt Marx & Deborah Strumsky & Lee Fleming, 2009. "Mobility, Skills, and the Michigan Non-Compete Experiment," Management Science, INFORMS, vol. 55(6), pages 875-889, June.
    12. Charles J. Hadlock & Joshua R. Pierce, 2010. "New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index," Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 1909-1940.
    13. Andrea L. Eisfeldt & Dimitris Papanikolaou, 2013. "Organization Capital and the Cross-Section of Expected Returns," Journal of Finance, American Finance Association, vol. 68(4), pages 1365-1406, August.
    14. Li, Peixin & Li, Frank Weikai & Wang, Baolian & Zhang, Zilong, 2018. "Acquiring organizational capital," Finance Research Letters, Elsevier, vol. 25(C), pages 30-35.
    15. Mark J. Garmaise, 2011. "Ties that Truly Bind: Noncompetition Agreements, Executive Compensation, and Firm Investment," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 27(2), pages 376-425.
    16. Custódio, Cláudia & Ferreira, Miguel A. & Matos, Pedro, 2013. "Generalists versus specialists: Lifetime work experience and chief executive officer pay," Journal of Financial Economics, Elsevier, vol. 108(2), pages 471-492.
    17. Prescott, Edward C & Visscher, Michael, 1980. "Organization Capital," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 446-461, June.
    18. Cook, Douglas O. & Kieschnick, Robert & Moussawi, Rabih, 2021. "Operating lease obligations and corporate cash management," Journal of Corporate Finance, Elsevier, vol. 69(C).
    19. Alan Hyde, 1998. "Silicon Valley'S High‐Velocity Labor Market," Journal of Applied Corporate Finance, Morgan Stanley, vol. 11(2), pages 28-37, June.
    20. Yue Qiu & Tracy Yue Wang, 2021. "Skilled Labor Risk and Corporate Policies [The growth of low skill service jobs and the polarization of the U.S. labor market]," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 10(3), pages 437-472.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ching-Hung Chang & Qingqing Wu, 2021. "Board Networks and Corporate Innovation," Management Science, INFORMS, vol. 67(6), pages 3618-3654, June.
    2. Chen, Jie & Leung, Woon Sau & Evans, Kevin P., 2016. "Are employee-friendly workplaces conducive to innovation?," Journal of Corporate Finance, Elsevier, vol. 40(C), pages 61-79.
    3. Giau Bui, Dien & Chen, Yehning & Lin, Chih-Yung & Lin, Tse-Chun, 2021. "Risk-taking of bank CEOs and corporate innovation," Journal of International Money and Finance, Elsevier, vol. 115(C).
    4. Byun, SeongK. & Fuller, Kathleen & Lin, Zhilu, 2021. "The costs and benefits associated with inventor CEOs," Journal of Corporate Finance, Elsevier, vol. 71(C).
    5. Cao, Chunfang & Li, Xiaohui & Li, Xiaoyang & Zeng, Cheng & Zhou, Xuan, 2021. "Diversity and inclusion: Evidence from corporate inventors," Journal of Empirical Finance, Elsevier, vol. 64(C), pages 295-316.
    6. Mueller, Clemens, 2023. "Non-Compete Agreements and Labor Allocation Across Product Markets," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277621, Verein für Socialpolitik / German Economic Association.
    7. Tu Nguyen & Jing Zhao, 2021. "Industry tournament incentives and corporate innovation," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(9-10), pages 1797-1845, October.
    8. Dou, Winston Wei & Ji, Yan & Wu, Wei, 2021. "Competition, profitability, and discount rates," Journal of Financial Economics, Elsevier, vol. 140(2), pages 582-620.
    9. Lei Kong, 2020. "Government Spending and Corporate Innovation," Management Science, INFORMS, vol. 66(4), pages 1584-1604, April.
    10. Francis, Bill & Mani, Suresh Babu & Sharma, Zenu & Wu, Qiang, 2021. "The impact of organization capital on firm innovation," Journal of Financial Stability, Elsevier, vol. 53(C).
    11. Hasan, Iftekhar & (Stan) Hoi, Chun-Keung & Wu, Qiang & Zhang, Hao, 2020. "Is social capital associated with corporate innovation? Evidence from publicly listed firms in the U.S," Journal of Corporate Finance, Elsevier, vol. 62(C).
    12. Hassan, M. Kabir & Houston, Reza & Karim, M. Sydul, 2021. "Courting innovation: The effects of litigation risk on corporate innovation," Journal of Corporate Finance, Elsevier, vol. 71(C).
    13. Nguyen, Justin Hung, 2022. "How do labor adjustment costs affect corporate tax planning? Evidence from labor skills," International Review of Financial Analysis, Elsevier, vol. 83(C).
    14. Xu, Zhaoxia, 2020. "Economic policy uncertainty, cost of capital, and corporate innovation," Journal of Banking & Finance, Elsevier, vol. 111(C).
    15. Fich, Eliezer M. & Nguyen, Tung & Petmezas, Dimitris, 2023. "The effects of terrorist attacks on inventor productivity and mobility," Research Policy, Elsevier, vol. 52(1).
    16. Yang, Huan, 2021. "Institutional dual holdings and risk-shifting: Evidence from corporate innovation," Journal of Corporate Finance, Elsevier, vol. 70(C).
    17. Çolak, Gönül & Korkeamäki, Timo, 2021. "CEO mobility and corporate policy risk," Journal of Corporate Finance, Elsevier, vol. 69(C).
    18. Lin, Zhilu & Patel, Pankaj & Oghazi, Pejvak, 2021. "The value of managerial ability and general ability for inventor CEOs," Journal of Business Research, Elsevier, vol. 135(C), pages 78-98.
    19. Cláudia Custódio & Miguel A. Ferreira & Pedro Matos, 2019. "Do General Managerial Skills Spur Innovation?," Management Science, INFORMS, vol. 65(2), pages 459-476, February.
    20. Joye Khoo & Adrian (Wai Kong) Cheung, 2023. "Does skilled labor risk matter to suppliers? Evidence from trade credit," The Financial Review, Eastern Finance Association, vol. 58(2), pages 423-447, May.

    More about this item

    Keywords

    Labor mobility; Organizational capital; Firm risk;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322005232. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.