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Investment in organization capital

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  • Carlin, Bruce Ian
  • Chowdhry, Bhagwan
  • Garmaise, Mark J.
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    Abstract

    We study a firm’s investment in organization capital by analyzing a dynamic model of language development and intrafirm communication. We show that firms with richer internal language (i.e., more organization capital) have lower employee turnover, and higher diversity in skill and wages among incumbents who are promoted from within the firm. Our results also suggest that firms in rapidly changing industries are less likely to invest in organization capital, and are more likely to have high managerial turnover. Finally, our model shows that employment protection regulations lead to more investment in organization capital but less innovation.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1042957311000362
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Intermediation.

    Volume (Year): 21 (2012)
    Issue (Month): 2 ()
    Pages: 268-286

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    Handle: RePEc:eee:jfinin:v:21:y:2012:i:2:p:268-286

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    Web page: http://www.elsevier.com/locate/inca/622875

    Related research

    Keywords: D23; G34; Organization capital; Corporate governance; Managerial turnover; Executive compensation; Mergers and acquisitions;

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    References

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    1. Mathias Dewatripont & Patrick Bolton, 1994. "The firm as a communication network," ULB Institutional Repository 2013/9595, ULB -- Universite Libre de Bruxelles.
    2. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
    3. Zwiebel, Jeffrey H. & Vayanos, Dimitri & DeMarzo, Peter M., 2001. "Persuasion Bias, Social Influence, and Uni-Dimensional Opinions," Research Papers 1719, Stanford University, Graduate School of Business.
    4. Burdett, Kenneth, 1996. "Truncated means and variances," Economics Letters, Elsevier, vol. 52(3), pages 263-267, September.
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    6. Andrew Atkeson & Patrick J. Kehoe, 2005. "Modeling and measuring organization capital," Staff Report 291, Federal Reserve Bank of Minneapolis.
    7. Dimitris Papanikolaou & Andrea Eisfeldt, 2009. "Organization Capital and the Cross-Section of Expected Returns," 2009 Meeting Papers 671, Society for Economic Dynamics.
    8. Paul C. Tetlock, 2007. "Giving Content to Investor Sentiment: The Role of Media in the Stock Market," Journal of Finance, American Finance Association, vol. 62(3), pages 1139-1168, 06.
    9. Jacques Cremer & Luis Garicano & Andrea Prat, 2006. "Language and the Theory of the Firm," Levine's Bibliography 784828000000000373, UCLA Department of Economics.
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    13. Prescott, Edward C & Visscher, Michael, 1980. "Organization Capital," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 446-61, June.
    14. Roy RADNER & Timothy VAN ZANDT, 1992. "Information Processing in Firms and Returns to Scale," Annales d'Economie et de Statistique, ENSAE, issue 25-26, pages 265-298.
    15. Denis, David J & Denis, Diane K, 1995. " Performance Changes Following Top Management Dismissals," Journal of Finance, American Finance Association, vol. 50(4), pages 1029-57, September.
    16. David H. Autor & William R. Kerr & Adriana D. Kugler, 2007. "Does Employment Protection Reduce Productivity? Evidence From US States," Economic Journal, Royal Economic Society, vol. 117(521), pages 189-217, 06.
    17. Milton Harris & Artur Raviv, 1999. "Organization Design," CRSP working papers 499, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    18. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Organizational Design and Technology Choice under Intrafirm Bargaining," American Economic Review, American Economic Association, vol. 86(1), pages 195-222, March.
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