an empirical examination of the implications of arbitrage pricing theory abstract this paper presents a comprehensive set of tests of the implications of the arbitrage pricing theory we find unlike previously reported results a very limited relationship between the expected returns and the covariance factor loadings measures of risk furthermore unique variance measures of risk while generally making only small contributions to the explanation of asset returns turn out to be significant about as frequently as the coveriance measures of risk which is inconsistent with the arbitrage pricing theory model the intercept tests are more mixed but provide only limited support to the model

trade offs in the investment decisons of european venture capitalists abstract previous studies of venture capital investment criteria which have tended to utilize traditional likert scaled survey methods have produced some general findings which indicate that the human factor is of utmost importance however virtually all of these studies have been undertaken with u s based venture capitalists in addition the studies have generally been exploratory and have assumed a single hierarchy of decision criteria in all cases and across all venture capitalists we do not accept that this is valid therefore our study tested this assumption by investigating the trade offs made by venture capitalists in europe thirty five investment criteria were identified from the literature and from experts in the field and a questionnaire was developed that required the venture capitalist to make 53 pairwise trade offs with multiple levels seventy three venture capitalists from across europe were interviewed and completed the questionnaire conjoint analysis was used to compute relative rankings and overall rankings were computed to provide some general insight into the overall importance of the various criteria after this cluster analysis was used to identify different decision groupings the trade offs were randomized in the questionnaire but for descriptive purposes fall into the following groupings financial product market strategic competitive fund management team management competence and deal all five management team criteria as opposed to management competence criteria were ranked among the first seven product market criteria appeared to be only moderately important and fund and deal criteria were at the bottom of the rankings overall we conclude that the venture capitalists interviewed would as a group prefer to select an opportunity that offers a good management team and reasonable financial and product market characteristics even if the opportunity does not meet the overall fund and deal requirements it appears quite logically that without the correct management team and a reasonable idea good financials are generally meaningless because they will never be achieved cluster analysis identified three groupings of venture capitalists those primarily concerned with investing nationally those who focus solely upon the deal and those mainstream investors who consistently and instinctively rank the five management team criteria at the top of their list however there was no evident country bias a conclusion that is sustained if the countries are grouped by physical proximity northern versus southern europe or by size of the local venture capital community a surrogate for experience moreover there was no relationship to the scale of the fund the typical round of financing or the apparent network the article concludes by outlining the implications of the study for venture capitalists entrepreneurs and the research community

new venture teams assessment of learning assistance from venture capital firms abstract prior research examining whether venture capital firms vcs add value to the ventures in their portfolios by advising their new venture teams nvts has led to inconclusive results whereas most prior studies have assumed that nvts value vc assistance this study tests for the possibility that they differentially value two different types of vc assistance business management and operational we collected data by surveying 837 firms identified in the venture capital journal that had received financing from venture capital firms only firms that received first round financing were included in our analysis which reduced our sample size to 205 firms our central finding is that systematic differences exist among nvts in their evaluation of learning assistance from vcs even though vcs can chose their own level of involvement with an nvt successfully improving venture performance through nonfinancial assistance at least partially depends upon the extent to which the nvt values vc input our results indicate that nvts with more industry experience and longer team tenure in the current venture are negatively related to both business management advice and operational assistance offered by their vcs however when an nvt has previously worked together and when its primary experience is from another industry it tends to welcome business management advice from its vc one interpretation of this finding is that an advanced level of operational specialization already exists in such a team which reinforces established operating patterns changing established operating patterns could make it more costly to adopt vc input on operational issues however business management advice may be more welcome because the nvt is still learning how to compete in a new industry these findings add to the growing literature that suggests that vcs play a particularly important role in entrepreneurial ventures when they pursue the development of new technologies ehrlich et al 1994 sapienza 1992 however business management advice is not highly valued by nvts that pursue more technical innovations these findings in combination with those of sapienza and amason 1993 suggest that conflict in the vc nvt relationship may be the greatest when the parties attempt to resolve critical differences which ironically appear to be the ones where the nvt could derive the greatest benefit from listening to its vc finally current firm performance is not related to the nvt s evaluation of vc assistance although cross sectional measures of performance have obvious limitations particularly with new ventures these results indicate that the nvt evaluation of vc assistance is not driven by short term performance past research has shown that vcs vary widely in their preferred level of involvement with the managers of firms in their portfolio some vcs prefer a laissez faire approach whereas others think that they must be more involved if they are to ultimately receive high rewards the central finding from this study is that significant differences exist among nvts in their evaluation of business management and operational assistance for vcs that are more involved these findings suggest that the optimal level of involvement is also partially contingent upon the nvts openness to learning ignoring the contingent nature of the vc nvt relationship vcs could reduce their influence as a tool to improve firm performance and to ensure the ultimate survival of the venture

a note on factor analysis and arbitrage pricing theory abstract this paper examines some theoretical and empirical properties of factor analysis and spells out their implications for arbitrage pricing theory apt doubts on the appropriateness of conventional factor analytic procedures for testing apt are raised on theoretical as well as empirical grounds

the economics of small business finance the roles of private equity and debt markets in the financial growth cycle abstract this article examines the economics of financing small business in private equity and debt markets firms are viewed through a financial growth cycle paradigm in which different capital structures are optimal at different points in the cycle we show the sources of small business finance and how capital structure varies with firm size and age the interconnectedness of small firm finance is discussed along with the impact of the macroeconomic environment we also analyze a number of research and policy issues review the literature and suggest topics for future research

some results in the theory of arbitrage pricing this paper derives a stronger version of huberman s recent preference free pricing theorem this pricing result relates the expected return on an asset to its factor responses and the covariance structure of the residuals from a linear factor model it must characterize any infinite asset economy in which no arbitrage opportunities are present whether or not the factor model has uncorrelated residuals this result provides the intuition for the role of residual risk in the pricing model and eliminates some classes of arbitrage opportunities still present under huberman s bound some applications to empirical tests and performance measurement are also discussed the arbitrage pricing theory is one of several financial pricing models which attempts to explain the cross sectional variation in expected returns on assets in certain respects it is similar to the capital asset pricing model but there are both substantive and subtle differences one of the key advantages of the apt is that it derives a simple linear pricing relation approximating that in the capm without some of the latter s objectionable assumptions perhaps the key disadvantage of the apt is that it provides no clues as to what might be important factors nor as to how to interpret the factor premiums which appear in the pricing equation this paper serves several purposes after reviewing the linear factor model formulation in section i it derives in section ii a stronger version of huberman s 9 recent preference free pricing theorem this pricing result relates the expected return on an asset to its factor responses and the covariance structure of the residuals this relation must characterize any infinite asset economy in which no arbitrage opportunities are present whether or not a linear factor model with uncorrelated residuals is the appropriate returns generating mechanism section iii specializes this result by eliminating the effects of residual covariances and compares the results here to those of previous apt models when applied to the standard linear factor model with uncorrelated residuals this new pricing bound eliminates arbitrage opportunities which remain under huberman s bound this result also provides for the first time the intuition for the role of residual risk in the approximate pricing relation section v provides an interpretation of the factor premiums and gives a valid asset pricing model interpretation to the apt which is consistent with merton s

employment change in independent owner managed high technology firms in great britain there is a growing volume of literature that points to the potential for small technology based firms to achieve substantial employment growth as a direct consequence of such work this sector of any economy has attracted increasing attention from national and local governments concerned with finding ways of revitalising economically deprived localities and creating employment opportunities this paper provides up to date empirical evidence surrounding the ability of small high technology firms to create additional jobs in great britain in addition key founder and business characteristics are isolated which are significantly associated with employment change in growing high technology firms over the 1986 to 1992 period with respect to factors influencing these high levels of employment growth a high firm size in 1986 was found to act positively on employment growth as was a graduate level education for the key founder on the finance side firms which had access to and used a multiplicity of sources of start up finance tended to grow faster futher on the basis of our results we would suggest and recommend a government policy which at the firm level actively encourages high technology firm start ups who record higher rates of survival than firms in more conventional sectors as well as providing support for existing high technology firms who have already demonstrated the inclination and ability to grow in employment size

the fallacy of only the strong survive the effects of extrinsic motivation on the persistence decisions for under performing firms abstract under performing firms persist even though existing theoretical perspectives indicate that they should be selected out of the market building upon threshold theory gimeno j folta t cooper a woo c 1997 survival of the fittest entrepreneurial human capital and the persistence of underperforming firms administrative science quarterly 42 750 783 and using staw s staw b m 1981 the escalation of commitment to a course of action academy of management review 6 4 577 587 theoretical model of commitment to a course of action we explore and test the factors that lead entrepreneurs to persist with under performing firms we found environmental munificence personal investment personal options previous organizational success and perceived collective efficacy impact the decision to persist with an under performing firm in addition extrinsic motivation moderates those relationships this research adds to the growing literature on highly persistent under performing firms and complements and extends threshold theory

the relationship between firm growth size and age estimates for 100 manufacturing industries this study uses a sample of all firms operating in 100 manufacturing industries to examine some aspects of firm dynamics it finds that firm growth the variability of firm growth and the probability that a firm will fail decrease with firm age it also finds that firm growth decreases at a diminishing rate with firm size even after controlling for the exit of slow growing firms from the sample gibrat s law therefore fails although the severity of the failure decreases with firm size copyright 1987 by blackwell publishing ltd

age size growth and survival uk companies in the 1980s this paper examines growth and survival amongst quoted and unquoted u k companies in the period 1975 85 and compares the results with earlier u k and u s studies an examination of death rates shows that smaller companies had higher death rates but the largest and smallest companies were least vulnerable to takeover careful attention is therefore paid to problems of sample selection bias it is shown that smaller companies grew faster than larger companies that gibrat s law does not hold amongst smaller firms that age is negatively related to growth and that these results are not an artifact of sample selection bias copyright 1994 by blackwell publishing ltd

on growth drivers of high tech start ups exploring the role of founders human capital and venture capital abstract in this paper we jointly analyze the effects of the human capital of founders and access to venture capital vc financing on the growth of 439 italian new technology based firms ntbfs we rely on econometric models that control for survivorship bias and the endogeneity of vc financing as to non vc backed firms the competence based argument that the capabilities of ntbfs coincide with founders skills is confirmed nonetheless once a ntbf obtains vc this coincidence vanishes pointing to the coach function performed by vc investors conversely the view that sees the scout function as the main task performed by vc investors is not supported

risk and capital asset prices abstract this paper is an empirical examination of the statistical significance of the residual variance of individual assets as compared with the covariance of returns with various market portfolio proxies in predicting expected return the data and analysis we present suggest that measures of covariance are no more significant than residual variance in predicting expected return in this sense our paper is not supportive of the sharpe lintner or black versions of the capital asset pricing model

venture capital in europe and the financing of innovative companies european venture captial venture capital is considered to be the most appropriate form of financing for innovative firms in high tech sectors venture capital has greatly developed over the last three decades in the united states but much less so in europe where policy makers are striving to help channel more funds into this form of financial intermediation in this paper we provide the first assessment of venture capital in europe we document its development in the 1990s and compare it with that of american venture capital we find the wedge between them to be large and growing we then look at the involvement of venture capital with some of europe s most innovative and successful companies those listed on europe s new stock markets venture capital is effective in helping these firms overcome credit constraints and thus to be born in the first place using a unique hand collected data set from the listing prospectuses and annual reports of these companies we find european venture capital to have a limited effect on their ability to raise equity capital grow and create jobs we conclude that public support of the european venture capital industry should look at both its growth and at its maturation laura bottazzi and marco da rin

a nonuniform pricing model of union wages and employment unlike implicit contracts models the nonuniform pricing model of unions assumes that firms can always shut down ex post to avoid any payments to the union under this restriction employment can differ from a first best even if both workers and firms are risk neutral in general the union chooses to offer quantity discounts on labor and needs to use a seniority rule that regulates the order in which workers are hired to implement these discounts unions lower almost all workers employment probabilities and increase the cyclical volatility of employment and the union nonunion average wage differential will move countercyclically workers preferences over union wage profiles conditional on their seniority exhibit within limits a convenient unanimity property

a critical reexamination of the empirical evidence on the arbitrage pricing theory this paper demonstrates that the roll and ross rr and other previously published tests of the apt are subject to several basic limitations there is a general nonequivalence of factor analyzing small groups of securities and factor analyzing a group of securities sufficiently large for the apt model to hold it is found that as one increases the number of securities the number of factors determined increases this increase in the number of factors with larger groups of securities cannot readily be explained by a distinction between priced and nonpriced risk factors as it is impermissible to carry out tests on whether a given risk factor is priced using factor analytic procedures the apt model as exposited by ross 17 18 and extended by huberman 9 has provided the basis of an extensive literature as for example brown and weinstein 1 chen 3 hughes 10 ingersoll 11 jobson 12 reinganum 15 roll and ross rr 16 and shanken 17 to mention but a few it has also been treated in a more general context by chamberlain and rothschild 2 our purpose here is not to comment on this collection of papers many of which are unpublished but to reexamine the evidence presented by rr and point out major pitfalls involved in the empirical methodology employed by them and others who have followed their lead rr claim that on theoretical and more importantly on empirical grounds arbitrage pricing theory apt is an attractive alternative to the capital asset pricing model capm the apt it is argued requires less stringent and presumably more plausible assumptions is more readily testable since it does not require the measurement of the market portfolio and may be better able to explain the anomalies found in the application of the capm to asset returns the acceptability of the apt like that of the capm or any other theory ultimately depends on its ability to explain the relevant empirical evidence our subsequent discussion will show that many of the prqblems associated with the capm are also present in the apt context and that its ability to explain the relevant empirical evidence is not markedly superior moreover it raises questions not only about the rr and related empirical investigations of the apt but also about the testability of that theory in the present state of the art a major part of the problem results from the necessity to break down the universe being analyzed through the apt model this is forced upon the investigator by the fact

the empirical foundations of the arbitrage pricing theory abstract this paper uses maximum likelihood factor analysis of large cross sections to examine the validity of the arbitrage pricing theory apt we are unable to explain the expected returns on firm size portfolios although we do explain the expected returns on portfolios formed on the basis of dividend yield and own variance where risk adjustment using the usual capm market proxies fails we also compare alternate versions of the apt and sharply reject the hypothesis that basis portfolios formed to mimic the factors span the mean variance frontier of the individual assets

new venture strategy and profitability a venture capitalist s assessment abstract this study uses theoretically justified criteria from the industrial organization io strategy literature and applies it to a new domain namely venture capitalists decision making specifically the study investigates the types of information venture capitalists utilize when evaluating new ventures and how venture capitalists use this information to assess likely new venture profitability in the interest of advancing our understanding of the decision making policies of venture capitalists this study addresses many of the limitations of previous research a review of io research suggests important relationships between a number of strategy variables and new venture profitability some of the relationships proposed by io strategy research are contingent in nature the strategy variables and their relationships with profitability are investigated in the domain of venture capitalists decision making individual and aggregate decision making analyses identified those strategy variables criteria venture capitalists utilize in assessing likely new venture profitability namely timing key success factor stability lead time competitive rivalry educational capability industry related competence timing key success factor stability interaction timing lead time interaction and timing educational capability interaction on average the most important criterion for venture capitalists in their assessment of profitability is industry related competence the second tier of importance is competitive rivalry timing and educational capability the third tier of importance is lead time key success factor stability and timing lead time interaction other interactions are less important therefore while venture capitalists use contingent decision policies main effects dominate if venture capitalists use a reported 8 to 12 minutes on average to evaluate a business plan sandberg 1986 then this study s findings may help the inexperienced venture capitalist allocate time towards assessing those attributes of primary importance although more complex relationships exist between the attributes the inexperienced venture capitalist can take comfort from this study s findings that main effects dominant amongst senior venture capitalists senior venture capitalists may take less comfort from their importance placed on main effects in light of research from io which suggests the importance of contingent relationships the results may also have practical application towards training how should venture capital firms train their new employees should venture capital firms rely solely on experienced venture capitalists lecturing the inexperienced on the criteria they use in assessing a new venture proposal like most decision makers venture capitalists have limited insight into their assessments and venture capital firms need to be aware of the gap between espoused policies and policies in use the information being taught needs to be supplemented with venture capitalists decision making research that investigates decision policies in use such as this study venture capitalist training could also involve experiential learning in conjunction with cognitive feedback about the decision policies used to accelerate the learning process experiential learning using cognitive feedback maximizes industry related learning while minimizing the cost of inexperienced decisions for the entrepreneur seeking capital this increased understanding of venture capitalists decision making may help them better target their business plans and presentations at those criteria venture capitalists find most critical to the profitability of a new venture

a model of venture capitalist investment activity the paper describes the activities of venture capitalists as an orderly process involving five sequential steps these are 1 deal origination the processes by which deals enter into consideration as investment prospects 2 deal screening a delineation of key policy variables which delimit investment prospects to a manageable few for in depth evaluation 3 deal evaluation the assessment of perceived risk and expected return on the basis of a weighting of several characteristics of the prospective venture and the decision whether or not to invest as determined by the relative levels of perceived risk and expected return 4 deal structuring the negotiation of the price of the deal namely the equity relinquished to the investor and the covenants which limit the risk of the investor 5 post investment activities the assistance to the venture in the areas of recruiting key executives strategic planning locating expansion financing and orchestrating a merger acquisition or public offering 41 venture capitalists provided data on a total of 90 deals which had received serious consideration in their firms the questionnaire measured the mechanism of initial contact between venture capitalist and entrepreneur the venture s industry the stage of financing and product development ratings of the venture on 23 characteristics an assessment of the potential return and perceived risk and the decision vis i vis whether to invest the modal venture represented in the database was a start up in the electronics industry with a production capability in place and seeking 1 million median in outside financing there is a high degree of cross referrals between venture capitalists particularly for the purposes of locating co investors factor analysis reduced the 23 characteristics of the deal to five underlying dimensions namely 1 market attractiveness size growth and access to customers 2 product differentiation uniqueness patents technical edge profit margin 3 managerial capabilities skills in marketing management finance and the references of the entrepreneur 4 environmental threat resistance technology life cycle barriers to competitive entry insensitivity to business cycles and down side risk protection 5 cash out potential future opportunities to realize capital gains by merger acquisition or public offering the results of regression analyses showed expected return to be determined by market attractiveness and product differentiation r2 0 22 perceived risk is determined by managerial capabilities and environmental threat resistance r2 0 33 finally a discriminant analysis correctly predicted in 89 4 of the cases whether or not a venture capitalist was willing to commit funds to the deal on the basis of the expected return and perceived risk the reactions of seven venture capitalists who reviewed the model s specification were used to test its validity

a simple approach to arbitrage pricing theory the following sections are included introductionarbitrage pricingdiscussionreferencesdiscussion notes on the arbitrage pricing theorypure arbitrage pricing theoryapproximate arbitrage and the aptapproximate factor modelsthe competitive equilibrium version of the aptconclusionnotereferences this abstract was borrowed from another version of this item

new tests of the apt and their implications this paper provides new tests of the arbitrage pricing theory apt test results appear to be extremely sensitive to the number of securities used in the two stages of the tests of the apt model new tests also indicate that unique risk is fully as important as common risk while these tests have serious limitations they are inconsistent with the apt

stock return anomalies and the tests of the apt this paper shows that the empirical tests of the arbitrage pricing theory apt model are very sensitive to the anomalies observed in january in the stock returns data there is a strong seasonal pattern in the estimates of the risk premia from the apt model the most important implication of the findings in this paper is that the apt model can explain the risk return relation mostly for january once the january returns are excluded from the data there is no significant relation between the expected stock returns and the risk measures predicted by the apt model it is now a very well known phenomenon that stock returns exhibit a peculiar seasonal pattern while such a seasonal pattern in stock returns is an interesting phenomenon in itself and has yet to be fully explained there is a serious implication of the observed seasonality in stock returns on the tests of the assetpricing models 1 tinic and west 17 for example report that the risk return relation described by the capital asset pricing model capm also exhibits a similar seasonality in january a result rozeff and kinney 16 report as well more importantly however they show that only one month january shows a consistently positive and reliable relation between expected return and risk once the data for january are excluded from the analysis of the risk return tradeoff the estimates of risk premia are no longer reliably different from zero although tinic and west do not offer an explanation for their findings their results raise serious questions about the empirical tests of the capm and ultimately its validity as a viable model to explain the pricing of risky assets the purpose of this paper is to investigate the impact of stock return seasonality on the empirical tests of the arbitrage pricing theory apt a number of researchers argue on both theoretical and empirical grounds that the apt is a good alternative to the capm although there is a growing body of empirical literature on the apt the empirical tests of the apt thus far have produced inconclusive results and a good deal of controversy it now seems appropriate to

on the positive role of financial intermediation in allocation of venture capital in a market with imperfect information this paper develops a theory of financial intermediation that highlights the contribution of intermediaries as informed agents in a market with imperfect information we consider a venture capital market where the entrepreneurs select the qualities of projects and their perquisite consumptions about which the investors are imperfectly informed it is shown that when all investors have positive search costs the entrepreneurs are induced to offer the unacceptable inferior projects lemons only and the investors will not enter the venture capital market but put their funds in other low return investments an undesirable allocation of resources beginning with an initial undesirable situation the financial intermediaries may evolve as informed agents that induce a pareto preferred allocation leading the investors to a higher welfare state we focus our analysis on the existence of intermediation equilibra when the market for intermediation services is competitive the distribution of returns on projects the fees charged by intermediaries and the fraction of institutional holdings are all endogenous in equilibrium it is shown that i there cannot be a competitive intermediation equilibrium with very high institutional holdings and ii in other cases multiple equilibra may exist but the one with the highest institutional holdings dominates the others in a pareto sense

in search of complementary assets the determinants of alliance formation of high tech start ups abstract why do new technology based firms ntbfs cooperate starting from teece s teece d j 1986 profiting from technological innovation implications for integration collaboration licensing and public policy research policy 15 285 305 conceptual framework and taking advantage of subsequent literature on alliance formation in the resource and competence based tradition and in the social structure perspective we derive an empirical model that aims at highlighting the inducements and obstacles that these firms face in alliance formation according to firm specific characteristics and the nature of the alliance in particular a distinction is made between exploitative commercial alliances and explorative technological alliances the econometric estimates based on a large sample of italian young high tech firms that are observed from 1994 to 2003 provide strong evidence supporting two key intuitions of teece s work first the combination of specialized complementary assets appears to be a key driver of the formation of exploitative commercial alliances by ntbfs more specifically patent holding affects positively the likelihood to establish commercial alliances but this propensity is found to rapidly decrease with firm size suggesting that as long as ntbfs become larger and possess specialized commercial assets their urge for commercial alliances diminishes second following the parallelism set forth by teece between search for alliance partners and access to external financing the analysis indicates that potentially beneficial alliances may not take place because of the high transaction costs faced by smaller ntbfs in this respect our results clearly support the view that sponsor institutions as public research organizations venture and corporate venture capitalists may sensibly reduce these costs and that their role crucially depends on both the identity of the sponsor and the type of alliance

an explicit bound on individual assets deviations from apt pricing in a finite economy abstract ross s arbitrage pricing theory apt is a tractible and reasonable alternative to the mean variance model nonetheless understanding of the theory has been obscured by the complexity of the sequence economy models used for motivation by contrast we give a simple and direct derivation of the apt in a finite economy using an explicit bound on the deviations from apt prices across assets a coarse calculation shows that theoretical deviations from apt pricing are negligible in our economy

competence and contract in the theory of the firm abstract the coase williamson response to the question why do firms exist is based on the idea that transaction costs in viable firms are lower than they would be if production was coordinated through the market the explanatory focus of this argument is on the diminution of costs related to transactions between given individuals however this ignores the possibility of activities which are in principle non contractible including aspects of the process of production further the reliance on comparative statics in transaction cost theory downplays the distinctive kind and rate of human learning that takes place within firms this paper argues that work on organizational learning and cultural transmission reinforces a competence based explanation of the existence and relative efficiencies of firms and this approach can also provide answers to the original question posed by coase accordingly the development of a research program involving a conjoint evaluation of both competence based and transaction cost approaches is proposed

venture capitalists and cooperative start up commercialization strategy this paper examines the possible impact of venture capital vc backing on the commercialization direction of technology based start ups by asking to what extent if at all do vc funded start ups engage in cooperative commercialization strategies strategic alliances or technology licensing or both relative to a comparable set of start ups and with what consequences to address these questions i assemble a novel data set that matches firms receiving a federal research and development subsidy through the u s small business innovative research program to vc funded firms by observable characteristics in five technology intensive industries these data allow decoupling of cooperative activity resulting from start up development via the passage of calendar time from that due to association with vcs an analysis of the 696 start ups in the sample split by an external funding source suggests substantial boosts in both cooperative activity associated with vc backed firms and in the likelihood of an initial public offering

productivity effects of organizational change microeconometric evidence this paper analyzes the relationship between investment in information and communication technologies ict non ict investment labor productivity and workplace reorganization firms are assumed to reorganize workplaces if the productivity gains arising from workplace reorganization exceed the associated reorganization costs two different types of organizational change are considered enhancement group work and flattening of hierarchies empirical evidence is provided for a sample of 411 firms from the german business related services sector we develop and estimate a model for labor productivity and firms decision to reorganize workplaces that allows workplace reorganization to affect any parameter of the labor productivity equation our general and flexible methodology allows us to properly take account of strategic complementarities between the input factors and workplace reorganization the estimation results show that changes in human resources practices do not significantly affect firms output elasticities with respect to ict non ict capital and labor although most of the point estimates of the individual output elasticities and of the control variables for observable firm heterogeneity are larger if workplace reorganization is realized we therefore apply the kernel density estimation technique and demonstrate that for firms with organizational change theentire labor productivity distribution shifts significantly out to the right if workplace reorganization takes place indicating that workplace reorganization induces an increase in labor productivity that is attributable to complementarities between the various input factors and workplace reorganization by contrast firms without organizational change would not have realized significant productivity gains if they had reorganized workplaces