Essays on the value creation and appropriation from human capital

Sevcenko, V (2018) Essays on the value creation and appropriation from human capital. Doctoral thesis, University of London: London Business School.

Abstract

This thesis explores the intersection of strategy and human capital management. Across three chapters in three different knowledge-intensive industries, I study how organizations can use internal and external market frictions to gain and lose their competitive advantage from skilled human capital. The first chapter studies how firms appropriate value from employees with transferable skills. The prevailing view is that labor market frictions that impede employee mobility or strategies that constrain skill transferability are the primary instruments for firms to appropriate value from human capital. The empirical evidence, however, suggests that employees continue to be mobile, and firms pay premiums to attract and retain employees with transferable skills. To reconcile theory with data, we use data from the mutual-fund industry, where it is widely documented that active fund managers appropriate more value than they generate. We develop a theory of positive externalities stemming from transferable human capital that we argue accrue mostly to the firm, and provide evidence of such externalities in the mutual fund context. The third chapter examines how star employees impact firm adaptation to environmental change. Prior theoretical and empirical work has tended to focus on stars' positive effects on firm value creation stemming from their disproportionate productivity, and their negative effects on firm value capture. However, in this paper I argue that even on the value creation side stars may have negative effects on firm performance. I draw a distinction between short-run and long-run effects of star employees, and show that while stars may help organizations increase performance in the short run, in the long run the star label may allow such employees to wield disproportionate influence over their organizations' decision-making processes and strategy. This can constrain the firm's search for new opportunities and limit its adaptation to external shocks. Results from the U.S. federal lobbying context corroborate my predictions. Firms employing star lobbyists are less able to adapt to adverse environmental changes and these effects are exacerbated by long star tenures, extensive star collaboration with colleagues and when the stars are also the organization's founders. The third chapter asks the question of when employees will pursue firm goals versus their career concerns. Prior literature suggests that adaptation improves with delegation because delegation facilitates the acquisition of relevant information and a quicker response. Yet, environmental changes can also change the incentives employees face to act on the information they gather, leading them to prioritize their own self-interest over that of their employers. This paper explores this trade-off between information and incentives in the wake of environmental change in the context of security analysts employed by US banks and finds evidence that employees pursue their career goals at the expense of organizational goals following such shocks.