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

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

Forthcoming in Academy of Management Journal

suggestions on earlier drafts of this paper. In addition, Catherine Daily and three anonymous reviewers provided invaluable guidance. Bidding Wars Over R&D-intensive Firms: Knowledge, opportunism and the market for corporate control The knowledge-based theory of the firm (KBTF) suggests that the scope and existence of firms can be explained independent of opportunism, the driving force behind transaction cost economics (TCE). Moreover, this theory suggests that, as knowledge intensity increases, organizational boundary decisions are increasingly driven by knowledge management concerns, rather than by opportunism. Therefore, as R&D-intensity increases, the KBTF should gain explanatory power over TCE. However, this study finds that problems of opportunism increase with R&D intensity. Specifically, as R&D intensity increased, managers actively discouraged bidding wars (e.g., by granting lockup agreements), contrary to shareholder interests. Managers may even be able to buy the firm themselves at a discount since rivals are unlikely to emerge. Indeed, TCE seems to gain explanatory power as knowledge intensity grows