The Intangible Value of Key Talent: Decomposing Organization Capital

Intangible assets are a key contributor to firm value, enabling the firm to differentiate itself from competitors on the basis of its access to specialized, efficient, firm-specific information, activities and procedures, identified as organization capital (OC). Since OC contains a heterogeneous group of disparate items, we isolate firm value creation by decomposing OC into two major parts: (1) key talent in the form of disclosed compensation of top executives which creates value and (2) a residual comprised of undisclosed perquisites and empire building expenses that do not increase firm value. Furthermore, residual OC creates systematic risk exposure, whereas key talent engenders idiosyncratic risk only.