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Organization Capital and the Cross-Section of Expected Returns

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  • Dimitris Papanikolaou

    (Northwestern University)

  • Andrea Eisfeldt

    (Northwestern University)

Abstract

This 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 Info

Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 671.

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Date of creation: 2009
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Handle: RePEc:red:sed009:671

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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  1. Vojislav Maksimovic, 2001. "The Market for Corporate Assets: Who Engages in Mergers and Asset Sales and Are There Efficiency Gains?," Journal of Finance, American Finance Association, vol. 56(6), pages 2019-2065, December.
  2. Fama, Eugene F. & French, Kenneth R., 1997. "Industry costs of equity," Journal of Financial Economics, Elsevier, vol. 43(2), pages 153-193, February.
  3. Prescott, Edward C & Visscher, Michael, 1980. "Organization Capital," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 446-61, June.
  4. Adriano Rampini & Andrea Eisfeldt, 2005. "Financing Shortfalls and the Value of Aggregate Liquidity," 2005 Meeting Papers 889, Society for Economic Dynamics.
  5. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
  6. Dimitris Papanikolaou, 2008. "Investment-Specific Technological Change and Asset Prices," 2008 Meeting Papers 637, Society for Economic Dynamics.
  7. Eisfeldt, Andrea L. & Rampini, Adriano A., 2006. "Capital reallocation and liquidity," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 369-399, April.
  8. Robert E. Hall, 1999. "The Stock Market and Capital Accumulation," NBER Working Papers 7180, National Bureau of Economic Research, Inc.
  9. Rosen, Sherwin, 1972. "Learning by Experience as Joint Production," The Quarterly Journal of Economics, MIT Press, vol. 86(3), pages 366-82, August.
  10. Andrew Atkeson & Patrick J. Kehoe, 2005. "Modeling and Measuring Organization Capital," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 1026-1053, October.
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Citations

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Cited by:
  1. Belo, Frederico & Lin, Xiaoji & Vitorino, Maria Ana, 2013. "Brand Capital and Firm Value," Working Paper Series 2013-04, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  2. Carlin, Bruce Ian & Chowdhry, Bhagwan & Garmaise, Mark J., 2012. "Investment in organization capital," Journal of Financial Intermediation, Elsevier, vol. 21(2), pages 268-286.
  3. Leonid Kogan & Dimitris Papanikolaou, 2012. "Growth Opportunities, Technology Shocks, and Asset Prices," NBER Working Papers 17795, National Bureau of Economic Research, Inc.
  4. Hanno Lustig & Chad Syverson & Stijn Van Nieuwerburgh, 2009. "Technological Change and the Growing Inequality in Managerial Compensation," NBER Working Papers 14661, National Bureau of Economic Research, Inc.
  5. Vasia Panousi & Dimitris Papanikolaou, 2011. "Investment, idiosyncratic risk, and ownership," Finance and Economics Discussion Series 2011-54, Board of Governors of the Federal Reserve System (U.S.).
  6. Kuhnen, Camelia M. & Oyer, Paul, 2012. "Exploration for human capital: Theory and evidence from the MBA labor market," MPRA Paper 39411, University Library of Munich, Germany.
  7. Matthias Kehrig, 2011. "The Cyclicality of Productivity Dispersion," Working Papers 11-15, Center for Economic Studies, U.S. Census Bureau.
  8. Urban Jermann, 2013. "A Production-Based Model for the Term Structure," NBER Working Papers 18774, National Bureau of Economic Research, Inc.
  9. Leonid Kogan & Mary Tian, 2012. "Firm characteristics and empirical factor models: a data-mining experiment," International Finance Discussion Papers 1070, Board of Governors of the Federal Reserve System (U.S.).
  10. Antonio Falato & Dalida Kadyrzhanova & Jae W. Sim, 2013. "Rising intangible capital, shrinking debt capacity, and the US corporate savings glut," Finance and Economics Discussion Series 2013-67, Board of Governors of the Federal Reserve System (U.S.).
  11. Leena Rudanko & Francois Gourio, 2011. "Customer capital and the business cycle," 2011 Meeting Papers 120, Society for Economic Dynamics.
  12. Leena Rudanko & Francois Gourio, 2010. "Customer Capital," 2010 Meeting Papers 121, Society for Economic Dynamics.

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