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Investment in organization capital

Author

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

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.

Suggested Citation

  • Carlin, Bruce Ian & Chowdhry, Bhagwan & Garmaise, Mark J., 2012. "Investment in organization capital," Journal of Financial Intermediation, Elsevier, vol. 21(2), pages 268-286.
    • Handle: RePEc:eee:jfinin:v:21:y:2012:i:2:p:268-286
    DOI: 10.1016/j.jfi.2011.08.001
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    References listed on IDEAS

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    Cited by:

    1. Alev Yildirim & Linda Allen, 2021. "Measuring systematic risk from managerial organization capital," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(9-10), pages 2049-2072, October.
    2. Xu, Jianhuan, 2017. "Growing through the merger and acquisition," Journal of Economic Dynamics and Control, Elsevier, vol. 80(C), pages 54-74.
    3. Fu, Fangjian & Huang, Sheng & Wang, Rong, 2022. "Why Do U.S. Firms Invest Less over Time?," Journal of Empirical Finance, Elsevier, vol. 69(C), pages 15-42.
    4. 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.
    5. Marwick, Alex & Hasan, Mostafa Monzur & Luo, Tianpei, 2020. "Organization capital and corporate cash holdings," International Review of Financial Analysis, Elsevier, vol. 68(C).
    6. Meir Russ & Bino Catas?s, 2014. "Editorial. Intellectual Capital and Management Control: Human Capital Valuation and other challenges," MANAGEMENT CONTROL, FrancoAngeli Editore, vol. 2014(2), pages 5-21.
    7. Konan Chan & Mei‐Xuan Li & Chu‐Bin Lin & Yanzhi Wang, 2022. "Organization capital effect in stock returns—The role of R&D," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(7-8), pages 1237-1263, July.
    8. Gao, Mingze & Leung, Henry & Qiu, Buhui, 2021. "Organization capital and executive performance incentives," Journal of Banking & Finance, Elsevier, vol. 123(C).
    9. Kim, Hyun-Dong & Park, Kwangwoo & Song, Kyojik Roy, 2021. "Organization capital and analysts’ forecasts," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 762-778.
    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, Mostafa Monzur & Lobo, Gerald J. & Qiu, Buhui, 2021. "Organizational capital, corporate tax avoidance, and firm value," Journal of Corporate Finance, Elsevier, vol. 70(C).
    12. Hasan, Mostafa Monzur & Cheung, Adrian (Wai-Kong), 2018. "Organization capital and firm life cycle," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 556-578.
    13. Li, Peixin & Li, Frank Weikai & Wang, Baolian & Zhang, Zilong, 2018. "Acquiring organizational capital," Finance Research Letters, Elsevier, vol. 25(C), pages 30-35.
    14. Cui, Huijie & Dai, Lixuan & Zhang, Yanan, 2021. "Organization Capital and Corporate Innovation: Evidence from China," Finance Research Letters, Elsevier, vol. 43(C).
    15. Hasan, Mostafa Monzur & Uddin, Mohammad Riaz, 2022. "Do intangibles matter for corporate policies? Evidence from organization capital and corporate payout choices," Journal of Banking & Finance, Elsevier, vol. 135(C).

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    More about this item

    Keywords

    D23; G34; Organization capital; Corporate governance; Managerial turnover; Executive compensation; Mergers and acquisitions;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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