Human Capital Intensive Industries Research Articles

Human Capital Portability and Worker Career Choices: Evidence from M&A Bankers

How does firm-specific human capital shape workers’ career trajectories? We develop a model that allows workers to accumulate both portable and non-portable (firm-specific) human capital through their work experience and learn about their match quality with current employers over time. The model is estimated using granular data on M&A bankers. We show that bankers accumulate a significant fraction of non-portable human capital, and this non-portability influences their productivity, job turnover, and career choices between sectors offering high returns on human capital and sectors offering generalizable skills. Our results have implications for high-skill workers in human capital-intensive industries in general.

Job satisfaction and firm leverage: Evidence from the “China’s Best Employer Award 100” winners

In this study, we examine the relationship between job satisfaction and firm leverage using a sample of Chinese listed firms. We find that in a sample of “China’s 100 Best Employers Award” winners during 2011–2017, job satisfaction is negatively associated with firm leverage. The effect is more pronounced in firms with higher distress risk and operating in human capital intensive industries. We confirm the validity of the main findings using a matched sample and a series of robustness checks. Overall, our results indicate that firms can credibly demonstrate their commitment to stakeholders and re-shape their capital structure by improving job satisfaction.

Magnetic Stars: Enhancing Organizational Recruitment Efforts Through Star Signaling

Organizations—particularly those in human capital-intensive industries—that have fought the talent war with star employees, may have received less than they bargained for (Groysberg, Lee, & Nanda, 2008; Terry & McGee, 2016). Consequently, firms may seek other ways in which a star employee can contribute to organizational productivity and effectiveness. We suggest that organizations can leverage their star talent within the recruitment process—one of the most urgent problems faced by organizations today (Ployhart, 2006). The current study seeks to examine if and how stars may enhance organizational recruitment efforts. In a 2 (star present versus absent) × 2 (average salary or above average salary) factorial research design (n = 184), we find that the presence of a star employee signals organizational reputation to potential applicants in the external labor market which, in turn, increases applicants’ attraction to the firm and the likelihood they will pursue the application process further. These results provide evidence that star employees can trigger signaling-based mechanisms early on in the recruitment process, leading to desirable organizational-level recruitment outcomes.

Bezpośrednie inwestycje zagraniczne w Polsce: stan obecny i perspektywy rozwoju

In the process of globalization of national economies, multinational enterprises are now playing an increasingly important role. Along with the growth of the importance of these enterprises, the structure of foreign directinvestment (FDI) is also evolving. So far, the majority of FDI was located in highly developed countries, and these investments were made in human capital intensive industries, the majority of which belonged to the services sector. In recent decades, there has been an increase in FDI inflows to developing and transforming countries. It is related to the liberalization and internationalization of their economies, as well as a significant decrease in transport costs and the costs of doing business across national borders. Over the last three decades, Poland also recorded a significant inflow of FDI, becoming one of important recipients of foreign capital among the new EU Member States (EU). The main purpose of this article is to analyze the last three decades of development of companies with foreign capital in Poland. This paper presents a descriptive analysis of FDI trends in Poland, including the number and size of companies with foreign capital, the source of this capital according to the investor’s country of origin, as well as the sectoral and industry structure of FDI in Poland. The results of this analysis allow, among other things, to identify key regularities related to the FDI made in Poland before and after the EU accession, as well as their reference to new theories of a multinational enterprise.

Why Do Partnerships Prevail in Human Capital Intensive Industries? An Information Coordination Perspective

Why does partnership as an organizational form of firms exist and persist, especially in human capital intensive industries, while traditional theory of the firm would predict otherwise? This paper addresses this question by developing a new theory of partnership firms. I show that under standard assumptions a simple partnership structure could first best coordinate individuals' actions guided by their private information. Parallel to the properties of a perfectly competitive market, in a partnership firm an enhanced version of the Second Welfare Theorem is obtained even with asymmetric information and externality. This result provides a new perspective for understanding why firms arise in a market economy, and has implications for the organization of many business activities.

Human capital, employment protection and growth in Europe

Using data for a large sample of manufacturing and service sectors in 14 EU countries, this paper shows that the value added and TFP growth rate differential between high and low human capital intensive industries is greater in countries with low than countries with high levels of employment protection legislation. We also find that such negative effect of EPL is slightly stronger for countries near the technology frontier, in the manufacturing sector and after the 1990s. We interpret these results suggesting that technology adoption depends on the skill level of the workforce and on the capacity of firms to adjust employment as technology changes: therefore, firing costs have a stronger impact in sectors where technical change is more skill-biased and technology adoption more important.

Employment Nondiscrimination Acts and Corporate Innovation

We show that U.S. state-level employment nondiscrimination acts (ENDAs)—laws that prohibit discrimination based on sexual orientation and gender identity—spur innovation. We find a significant increase in patents and patent citations for firms headquartered in states that have passed ENDAs relative to firms headquartered in states that have not. This result is more pronounced for firms that previously have not implemented pro-gay nondiscrimination policies, for firms in states with a large homosexual population, and for firms in human capital-intensive industries. Lastly, we provide evidence suggesting that ENDAs affect innovation by matching employees, who are generally more creative than anti-gay employees, with innovative firms. This paper was accepted by Gustavo Manso, finance.

Does Workforce Diversity Pay? Evidence from Corporate Innovation

We identify a positive causal effect of workplace diversity on corporate innovation, using the staggered adoption of U.S. state-level Employment Non-Discrimination Acts (ENDAs) that prohibit discrimination based on sexual orientation and gender identity. We find a significant increase in patents and patent citations for firms headquartered in states that have passed ENDAs relative to firms headquartered in states that have not. This result is more pronounced for firms that previously have not implemented progay non-discrimination policies, for firms in states with a large homosexual population, and for firms in human capital-intensive industries. Lastly, we provide evidence that ENDAs affect innovation through the mechanism of matching firms with certain types of employees: following the enactment of ENDAs, more pro-gay (anti-gay) employees, who are generally more (less) creative, relocate into (out of) the adopting states. Overall, our findings support the view that inclusion inspires innovation.

A story of large landowners and math skills: Inequality and human capital formation in long-run development, 1820–2000

We create a new dataset to test the influence of land inequality on long-run human capital formation in a global cross-country study and assess the importance of land inequality relative to income inequality. Our results show that early land inequality has a detrimental influence on math and science skills even a century later. We find that this influence is causal, using an instrumental variable (IV) approach with geological, climatic and other variables that are intrinsically exogenous. A second major contribution of our study is our assessment of the persistence of numerical cognitive skills, which are an important component of modern human capital measures. Early numeracy around 1820 is estimated using the age-heaping strategy. We argue that countries with early investments in numerical education entered a path-dependency of human capital-intensive industries, including skill-intensive agriculture and services. The combined long-run effects of land inequality and human capital path-dependence are assessed for the first time in this article.

Firm Size and Industry Structure Under Human Capital Intensity: Insights from the Evolution of the Global Advertising Industry

Although existing literature assumes that the human capital intensity of professional services leads to small and flimsy firms, several professional services feature large, long-lived firms. To develop insights about firm size and industry structure in human capital intensive industries, I analyze the structure and evolution of the advertising industry. Drawing on a range of quantitative and qualitative evidence, I develop two hypotheses regarding the industry's structure and consolidation: (1) size differentiation, in which firm size and industry structure are connected to the size distribution of clients' projects, and (2) financial intermediation, in which the industry's consolidation is ascribed to organizational innovations that mitigate transaction costs between external investors and ad agency owners. I then discuss the applicability of these two hypotheses to other professional services. The analysis suggests several new insights about the value of capital, the nature of demand, and the nature of assets in human capital intensive industries.

A Study of Supportive Climate, Trust, Engagement and organizational Commitment

This study was undertaken to explore the relationship between supportive climate and organizational commitment as mediated by trust and employee engagement. In a field test of 243 engineers and technicians from a Fortune 100 multinational firm, participants completed surveys about their organization's supportive climate, trust in their organization's leadership, affective organizational commitment, and engagement. Support for all hypotheses was found: (1) positive relationship between supportive climate and organizational commitment, and both (2) trust and (3) employee engagement mediated the climate-commitment relationship. Limitations of this study include generalizability of findings and common method bias. In human capital intensive industries, the value of human resources is measured in behavioral manifestations (e.g. turnover) of low trust, engagement, commitment, and a less than supportive work environment. By understanding the relationships among those variables managers can actively manage their human capital.

Profit Sharing And The Role Of Professional Partnerships*

We compare the costs and benefits of profit-sharing partnerships relative to the corporate form of organization. We show that organizing as a partnership can be desirable in human-capital intensive industries where product quality is hard to observe. The theory explains the relative scarcity of partnerships outside of professional service industries such as law, accounting, medicine, investment banking, architecture, advertising, and consulting. It also sheds light on features of partnerships such as up-or-out promotion systems, the use of non-compete clauses, motives for profit sharing as well as recent trends in professional service industries

Partnership Firms, Reputation, and Human Capital

In human capital intensive industries where it is difficult to contract upon the training effort of skilled agents a socially suboptimal level of training may occur. We show how partnership organisations can overcome this problem by tying human and financial capital. Partnerships are opaque so that the willingness of clients to pay depends upon reputation. Partnerships are illiquid and partners must stay with the firm until clients discover their type and update the firm's reputation. This renders unskilled agents, who will aversely affect reputation, unwilling to accept partnerships. Skilled agents therefore train the next generation so as to ensure that there is an adequate market for their own shares. We comment upon the salient differences between partnerships and joint stock firms.

Partnership Firms, Reputation, and Human Capital

In human capital intensive industries where it is difficult to contract upon the training effort of skilled agents a socially suboptimal level of training may occur. We show how partnership organisations can overcome this problem by tying human and financial capital. Partnerships are opaque so that the willingness of clients to pay depends upon reputation. Partnerships are illiquid and partners must stay with the firm until clients discover their type and update the firm's reputation. This renders unskilled agents, who will aversely affect reputation, unwilling to accept partnerships. Skilled agents therefore train the next generation so as to ensure that there is an adequate market for their own shares. We comment upon the salient differences between partnerships and joint stock firms.

Human Capital, Shared Expertise, and the Likelihood of Impasse in Corporate Acquisitions

Human capital often cannot be acquired in efficient labor markets due to poor information or firm-specific skills that develop over time. Since such knowledge may be critical to firms building a strategic capability, it is not surprising that many acquisitions occur in human capital-intensive industries. Yet, the uncertainty associated with human capital increases the risk of overbidding. If the buyer bids conservatively, the target may reject the offer or rival bidders may emerge. In contrast, aggressive bidders may need to back out of the transaction if due diligence reveals unanticipated risks. Either way, impasse is more likely for targets in human capital-intensive industries. This study explores whether a shared expertise mitigates these hazards. Findings suggest that similar expertise is particularly important when acquiring human capital-intensive targets. Transactions involving unrelated buyers of such targets are less likely to close. This has implications for diversification theory and the resource-based view.

Human Capital, Shared Expertise, and the Likelihood of Impasse in Corporate Acquisitions

Human capital often cannot be acquired in efficient labor markets due to poor information or firm-specific skills that develop over time. Since such knowledge may be critical to firms building a strategic capability, it is not surprising that many acquisitions occur in human capital-intensive industries. Yet, the uncertainty associated with human capital increases the risk of overbidding. If the buyer bids conservatively, the target may reject the offer or rival bidders may emerge. In contrast, aggressive bidders may need to back out of the transaction if due diligence reveals unanticipated risks. Either way, impasse is more likely for targets in human capital-intensive industries. This study explores whether a shared expertise mitigates these hazards. Findings suggest that similar expertise is particularly important when acquiring human capital-intensive targets. Transactions involving unrelated buyers of such targets are less likely to close. This has implications for diversification theory and the resource-based view.

OPPORTUNISM AND KNOWLEDGE-BASED ASSETS: HUMAN CAPITAL, MANAGEMENT BUYOUTS AND THE MARKET FOR CORPORATE CONTROL.

Do managers take advantage of asymmetric information in human capital intensive industries through management buyouts? Asymmetric information is great when targets draw on human capital or knowledg...

The Firm as a Dedicated Hierarchy: A Theory of the Origin and Growth of Firms

In the formative stages of their businesses, entrepreneurs have to provide incentives for employees to protect, rather than steal, the source of organizational rents. We study how the entrepreneur's response to this problem determines the organization'sinternal structure, growth,anditseventualsize. Large, steep hierarchies will predominate in physical-capital in-tensive industries, and will have seniority-based promotion policies. By contrast, at hierarchies will prevail in human-capital intensive industries and will have up-or-out promotion systems. Furthermore, at hierarchies will have more distinctive technologies or cultures than steep hierarchies. The model points to some essential differences between organized hierarchies and markets.