Star turnover and the value of human capital - evidence from Broadway shows

Abstract

•A vast literature in finance and labor is concerned with the valuation of the human capital of key members of organizations. Finance papers often use CEO fixed effects and personal history and events to identify the impact of individuals on organizations. However, in these cases and in studies of CEO turnovers, it is difficult to control for everything that transpires in a complex organization. •Theater shows routinely turn-over actors in lead roles for a variety of reasons. However, all other elements of the show remain in place, including the director, the script, other actors and the physical theater environment. Even the lines stay the same. Therefore the theater provides a unique laboratory for assessing the value of human capital to an enterprise. •Our analysis focuses on transitions between top featured cast members in long-running Broadway shows. We compare revenues, capacity and ticket prices just before and just after the change in cast. We also characterize the performers in various ways, and control for the attributes of the show, as well as for team characteristics. •We find that only the most talented theater stars significantly affect the financial success of theater shows, supporting the MacDonald (1988) version of the superstar hypothesis. However, movie stars and well known performers from other fields of the performing arts do not seem to affect prices or revenues. Teams are important, and a departure of a team or someone who had worked with the current director before is detrimental to the performance of the show. Seasonal effects matter as well.