Actor Replacement as a Pseudo-Natural Experiment in the Value of Human Capital- Evidence from Broadway Shows

Abstract

Much work in finance strategy and economics has tried to assess the value of key personnel to an organization or an enterprise. Much of the testing has been done in the context of movies and most of that work failed to find a correlation between the ex-ante inclusion of a star and the financial success of a film project. Work in other areas finds mixed results.The theater provides a quasi-natural experiment setting for testing the direct impact of key personnel changes. Shows routinely turn-over actors in lead roles for a variety of reasons. All elements of the show remain in place, including the director, the script, other actors and the physical theater environment and only an actor is switched.Our analysis focuses on transitions between top featured cast members. We consider various measures of success just before and just after the change in cast. We also characterize the performers in various ways, and control for the attributes of the show, as well as for team characteristics.We find that only the most talented theater stars affect the financial success of theater shows, supporting the MacDonald (1988) version of the superstar hypothesis. A transition from a “non-star” to a “star” results in higher ticket prices and higher revenues. However, celebrities and well known stars from other fields of the performing arts do not seem to have a significant effect on prices or revenues. Teams are important, and a departure of a team or someone who had worked with the current cast before is detrimental to the performance of the show. Seasonal effects are important as well.