Matching Capital and Labor
We establish an important role for the firm by studying capital reallocation decisions of mutual fund firms. We show that firms add significant value by matching capital to labor. We find that, following the firm's decision to reallocate capital to one of its managers, future value added increases significantly. We find no evidence of a similar effect when a firm hires a manager from another firm. We conclude that an important reason why firms exist is the private information that derives from firms' ability to better assess the skill of their own employees.
You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.
Document Object Identifier (DOI): 10.3386/w20138