Why do some firms consistently outperform other firms that appear to have access to similar technologies, similar workers, and similar amounts of capital? This question has occupied economists for decades. Studies of productivity repeatedly find large and persistent differences between firms operating in the same industry, differences that cannot be fully explained by conventional inputs such as labour, physical capital, or technology (Syverson 2004, 2011). A growing literature argues that an important part of the explanation lies in organisational factors: the way firms coordinate activities, motivate employees, accumulate knowledge, and adapt to changing environments (Prescott and Visscher 1980, Atkeson and Kehoe 2005, Gibbons and Henderson 2012).

These organisational factors have been studied under a variety of labels. Research has highlighted the importance of management practices (Bloom and Van Reenen 2007), relational contracts (Baker et al. 2002), corporate culture (Guiso et al. 2015), firm-specific human capital (Prescott and Visscher 1980), and organisational capabilities (Teece et al. 1997). While these concepts differ in important respects, they all point to the existence of valuable firm-specific intangible assets. Recent theoretical work has unified these ideas under the broader notion of organisational capital: a stock of intangible organisational assets that affects performance, evolves gradually over time, and is shaped by managerial decisions (Dessein and Prat 2022).

Measuring organisational capital has proven considerably more difficult than defining it. Because it is largely invisible and rarely appears on balance sheets, economists have relied on indirect proxies, particularly measures based on firms’ expenditures on selling, general, and administrative activities (Lev and Radhakrishnan 2005, Eisfeldt and Papanikolaou 2013). These measures capture what firms spend to build organisational capital, but not whether those efforts actually improve the organisation.

In recent work (Cai et al. 2026), we propose a new way of measuring organisational capital using employee reviews posted on Glassdoor. The idea is straightforward. Employees directly experience the culture, management practices, communication systems, and coordination mechanisms that constitute organisational capital. While these features are difficult for outside observers to see, they are often discussed explicitly by workers describing their day-to-day experience. By combining more than one million employee reviews with modern AI-based text analysis techniques, we construct a firm-level measure of organisational capital that varies both across firms and over time.

Our approach exploits a distinctive feature of employee reviews. Workers are uniquely positioned to observe aspects of the organisation that are difficult to capture through traditional data sources. They experience whether information flows efficiently across teams, whether managers provide clear direction, whether incentives are aligned, and whether employees cooperate effectively. Rather than relying on managerial disclosures or accounting expenditures, our measure draws on the perceptions of those who interact with the organisation every day.

The resulting measure exhibits several properties that economists associate with organisational capital. Firms with higher organisational capital are more profitable and receive higher market valuations. Organisational capital also changes gradually rather than abruptly, consistent with the notion of an accumulated stock of organisational knowledge and routines rather than a short-lived managerial initiative. Moreover, the measure is more strongly associated with employee assessments of culture and management quality than with more concrete job attributes such as compensation or work-life balance. Firms appearing on Fortune’s list of the best companies to work for also score substantially higher on organisational capital. Taken together, these patterns suggest that the measure captures an economically meaningful intangible asset rather than general employee satisfaction.

Who creates organisational capital?

A central question in the literature is whether organisational capital is primarily a characteristic of firms or of their leaders. Figure 1 helps answer that question by decomposing the variation in our measure into industry, firm, and CEO components.

Figure 1 Sources of variation in organisational capital

The results are striking. Industry and aggregate time effects explain only a small fraction of the variation in organisational capital. Firm-specific factors explain more, but an even more notable finding is that CEO-related variation accounts for roughly one-third of organisational capital. In other words, organisational capital is neither simply an industry characteristic nor a fixed attribute of the firm. Leadership matters. This finding is consistent with theories that view organisational capital as an asset that is partly created and maintained by top management. It also suggests that differences in leadership may help explain why firms with otherwise similar technologies and resources often perform so differently.

CEO turnover and organisational capital

If CEOs matter for organisational capital, what happens when leadership changes? Figure 2 addresses this question by tracking organisational capital around CEO turnovers. The figure compares organisational capital before and after a change in leadership while controlling for firm characteristics and aggregate shocks.

Figure 2 Organisational capital around CEO turnover

The figure provides perhaps the clearest evidence that organisational capital is closely tied to leadership. Prior to turnover, organisational capital is remarkably stable. There is little evidence of a downward trend in the years leading up to the change in leadership. Immediately after turnover, however, organisational capital declines significantly and remains depressed for roughly two years before gradually recovering. The effect is economically meaningful and statistically significant.

This pattern suggests that organisational capital is not merely embedded in formal procedures, reporting lines, or organisational charts. Leadership transitions appear to disrupt tacit routines, relationships, communication channels, and shared understandings that take time to rebuild. Even when a new CEO ultimately improves the organisation, the transition itself carries organisational costs. The evidence therefore points to a view of firms in which leaders play an important role not only through strategic decisions but also through their contribution to maintaining and developing intangible organisational assets.

The figure also offers a broader lesson about the nature of firms. Economists often model firms as bundles of assets and contracts. Yet organisations also embody accumulated knowledge that resides in relationships, routines, and patterns of interaction. These assets are difficult to codify and cannot be transferred as easily as physical capital. The temporary decline in organisational capital following CEO turnover suggests that leadership plays an important role in preserving these intangible assets. Organisational capital behaves less like a machine and more like a social system whose effectiveness depends on continuity, trust, and shared understanding.

Employee voice as an organisational asset

Beyond measurement, our findings have practical implications for how firms manage intangible assets. Employees are often the first to observe problems in communication, coordination, and culture, that is, factors that are central to organisational capital but largely invisible in conventional accounting data. Systematically listening to employee voice can therefore help firms detect organisational weaknesses before they show up in financial performance. Recent advances in artificial intelligence make this increasingly feasible, allowing firms to extract systematic insights from large volumes of employee feedback that would previously have been impossible to analyse at scale.

As intangible assets become increasingly important, organisational capital deserves greater attention from managers, boards, and investors. Employee-generated data offer a new way to make visible a critical but previously hidden asset. In a knowledge-based economy, understanding and preserving organisational capital may be as important as investing in physical capital or technology. For policymakers, the ability to measure organisational capital directly may improve our understanding of productivity differences across firms and help identify sources of economic performance that remain largely invisible in conventional data.

References

Atkeson, A, and P Kehoe (2005), “Modeling and measuring organization capital”, Journal of Political Economy 113(5): 1026–53.

Baker, G, R Gibbons, and K Murphy (2002), “Relational contracts and the theory of the firm”, Quarterly Journal of Economics 117(1): 39–84.

Bloom, N, and J Van Reenen (2007), “Measuring and explaining management practices across firms and countries”, Quarterly Journal of Economics 122(4): 1351–408.

Cai, W, A Prat, and J Yu (2026), “Measuring organizational capital”, Journal of Accounting Research.

Dessein, W, and A Prat (2022), “Organizational capital and firm dynamics”.

Eisfeldt, A, and D Papanikolaou (2013), “Organization capital and the cross-section of expected returns”, Journal of Finance 68(4): 1365–406.

Gibbons, R, and R Henderson (2012), “What do managers do? Exploring persistent performance differences among seemingly similar enterprises”, in The Handbook of Organizational Economics.

Guiso, L, P Sapienza, and L Zingales (2015), “The value of corporate culture”, Journal of Financial Economics 117(1): 60–76.

Lev, B, and S Radhakrishnan (2005), “The valuation of organization capital”.

Prescott, E, and M Visscher (1980), “Organization capital”, Journal of Political Economy 88(3): 446–61.

Syverson, C (2004), “Market structure and productivity: A concrete example”, Journal of Political Economy 112(6): 1181–222.

Syverson, C (2011), “What determines productivity?”, Journal of Economic Literature 49(2): 326–65.

Teece, D, G Pisano, and A Shuen (1997), “Dynamic capabilities and strategic management”, Strategic Management Journal 18(7): 509–33.