DP20229 Measuring Organizational Capital
Prior research has pointed to differences in organizational capital as a reason for the persistent performance discrepancies among similar firms. In this paper, we develop and validate new measures of organizational capital. Based on over a million crowd-sourced employee reviews scraped from Glassdoor, we construct the measures of organizational capital at the firm-year level using the word embedding model and ChatGPT-generated synthetic reviews. Our measures vary over time in accordance with macro trends, and differ both across and within firms, reflecting firm heterogeneity and major internal changes. We validate our measures by testing empirical predictions of the properties of organizational capital discussed in prior literature. Our findings suggest that this measure captures a slowly evolving intangible asset that is significantly associated with firm performance and top management's influence, aligning with the conceptualization of organizational capital by Dessein and Prat (2022). We further showcase applications of our measures in accounting, economics, finance, and management literature. Taken together, the paper provides implications for various stakeholders who are interested in assessing and managing firms' organizational capital.
