Assistant Professor of Strategy
Human Capital; Spillovers From Human Capital; Value Appropriation; Mutual Funds;
How do firms benefit 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, the authors use data from the mutual fund industry, where it is widely documented that active fund managers appropriate more value than they generate. They develop a theory of positive externalities stemming from transferable human capital that they argue accrue mostly to the firm, and provide evidence of such externalities in the mutual fund context.Empirically, the authors decompose the skills of mutual fund managers into task- and firm-specific components and argue that managers with task-specific skills generate positive externalities at the firm level that are not reflected in their performance measured at the fund level. They advance and test empirical hypotheses on the existence of these positive unmeasured externalities by examining whether managers with task-specific skills are more likely to be associated with activities such as mentoring, increased risk taking, and generating spillovers at the firm level.The results show that managers with task-specific skills are indeed associated with greater positive externalities, compared with managers with firm-specific skills. The authors discuss the implications of our results for the literature on human capital value creation and appropriation.