Discussion Paper Details

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Title: Organizational Capital, Corporate Leadership, and Firm Dynamics

Author(s): Wouter Dessein and Andrea Prat

Publication Date: February 2019

Keyword(s): CEO, Management and Organizational Capital

Programme Area(s): Financial Economics and Industrial Organization

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.

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Bibliographic Reference

Dessein, W and Prat, A. 2019. 'Organizational Capital, Corporate Leadership, and Firm Dynamics'. London, Centre for Economic Policy Research.