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Organizational Capital, Corporate Leadership, and Firm Dynamics

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  • Dessein, Wouter
  • Prat, Andrea

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.

Suggested Citation

  • Dessein, Wouter & Prat, Andrea, 2019. "Organizational Capital, Corporate Leadership, and Firm Dynamics," CEPR Discussion Papers 13513, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:13513
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    References listed on IDEAS

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    Cited by:

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    3. Kilian Huber & Volker Lindenthal & Fabian Waldinger, 2021. "Discrimination, Managers, and Firm Performance: Evidence from “Aryanizations” in Nazi Germany," Journal of Political Economy, University of Chicago Press, vol. 129(9), pages 2455-2503.
    4. Ohlsbom, Roope, 2021. "Management Practices Drive Productivity – But Not Without Human Capital," ETLA Working Papers 88, The Research Institute of the Finnish Economy.
    5. Merchan Alvarez, Federico Alberto, 2022. "International managerial skill and big Colombian exporting firms' performance, 2006-2014," Kiel Working Papers 2226, Kiel Institute for the World Economy (IfW Kiel).
    6. Marcus Biermann, 2022. "The role of management practices in acquisitions and the FDI location decision," Review of International Economics, Wiley Blackwell, vol. 30(1), pages 137-165, February.
    7. Kets, Willemien, 2021. "Organizational Design: Culture and Incentives," SocArXiv 3y8t4, Center for Open Science.

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    More about this item

    Keywords

    CEO; Management; Organizational Capital;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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