Organization Capital and the Cross-Section of Expected Returns
AbstractThis paper studies the unique risk characteristics of organization capital. Using a stock measure of organization capital based on readily available accounting data, we find that firms with more organization capital relative to their industry peers outperform firms with less organization capital by 4.7% per year. A long short portfolio based on the ratio of the stock of organization capital to total assets within industries has a Sharpe ratio of 0.57. We construct a model featuring what we argue are the two most salient features of organization capital, namely that it is firm specific and that it is partially embodied in firms' labor input and thus cannot be wholly owned by shareholders. The model economy illustrates the sensitivity of organization capital to economic restructuring and the resulting risk premia required for high organization capital firms.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 671.
Date of creation: 2009
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- Andrea L. Eisfeldt & Dimitris Papanikolaou, 2013. "Organization Capital and the Cross-Section of Expected Returns," Journal of Finance, American Finance Association, vol. 68(4), pages 1365-1406, 08.
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