Preparing for a Rainy Day: Firm Capital and Novel Risk

25 Pages Posted: 10 Jan 2022 Last revised: 7 Mar 2022

See all articles by Wei Cai

Wei Cai

Columbia Business School

Robert S. Kaplan

Harvard Business School

Yuan Zou

Harvard University - Business School (HBS)

Date Written: December 17, 2021

Abstract

Many organizations face novel risks. Novel risks are unforeseen, hard to manage, and, despite the challenges in preparing for and managing them, surprisingly understudied in academia. This paper uses the unexpected COVID-19 pandemic as a setting to examine how organizations can build firm capital to prepare for novel risks. We define four types of firm capital: (1) financial, (2) human, (3) organizational, and (4) industrial. Our findings show that firms with more of these four pre-crisis capital types prior to the pandemic have better stock performance. Therefore, our paper provides important managerial implication for firms that want lower adverse consequences from future novel risk events.

Suggested Citation

Cai, Wei and Kaplan, Robert S. and Zou, Yuan, Preparing for a Rainy Day: Firm Capital and Novel Risk (December 17, 2021). Columbia Business School Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=3987659 or http://dx.doi.org/10.2139/ssrn.3987659

Wei Cai

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Robert S. Kaplan

Harvard Business School ( email )

Soldiers Field
Accounting & Control
Boston, MA 02163
United States
617-495-6150 (Phone)
617-496-7363 (Fax)

Yuan Zou (Contact Author)

Harvard University - Business School (HBS)

Soldiers Field Road
Morgan 362
Boston, MA 02163
United States

Do you want regular updates from SSRN on Twitter?

Paper statistics

Downloads
165
Abstract Views
1,549
rank
244,514
PlumX Metrics