Research Note On The Incremental Value Of Knowledge Workers

As firms seek to manage knowledge, they rely increasingly on knowledge workers. The assumption is often that the incremental value from hiring these knowledge workers accrues to firms, but theory indicates that it may not. In this research note, we examine this question.  We perform a cross-sectional study of 30 investment banks in the period 1992-96.  We use gross value of mergers and acquisitions business as a proxy for gross performance, and pre-tax operating income as a proxy for net performance.  The dependent variable and measure of knowledge workers is the number of “star” analysts, as measured by Wall Street Journal/Zacks rankings.  Our results strongly support the hypothesis that the number of star analysts in investment banking is positively associated with gross performance, and weakly support the hypothesis that they are not positively associated with net performance. If future research could generalize these conclusions, they could have implications for design of compensation systems in industries significantly employing knowledge workers

Entrepreneurial Human Capital, Complementary Assets, and Takeover Probability

Gaining access to technologies, competencies, and knowledge is observed as one of the major motives for corporate mergers and acquisitions. In this paper we show that a knowledge-based firm's probability of being a takeover target is influenced by whether relevant specific human capital aimed for in acquisitions is directly accumulated within a specific firm or is bound to its founder or manager owner. We analyze the incentive effects of different arrangements of ownership in a firm's assets in the spirit of the Grossman-Hart-Moore incomplete contracts theory of the firm. This approach highlights the organizational significance of ownership of complementary assets. In a small theoretical model we assume that the entrepreneur's specific human capital, as measured by the patents they own, and the physical assets of their firm are productive only when used together. Our results show that it is not worthwhile for an acquirer to purchase the alienable assets of this firm due to weakened incentives for the initial owner. Regression analysis using a hand collected dataset of all German IPOs in the period from 1997 to 2006 subsequently provides empirical support for this prediction. This paper adds to previous research in that it puts empirical evidence to the Grossman-Hart-Moore framework of incomplete contracts or property rights respectively. Secondly, we show that relevant specific human capital that is accumulated by a firm's founder or manager owner significantly decreases that firm's probability of being a takeover target

their suggestions on previous drafts. Human Capital, Shared Expertise, and the Likelihood of Impasse in Corporate

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