Organization Capital and the Cross-Section of Expected Returns
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.
|Date of creation:||2009|
|Date of revision:|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fama, Eugene F. & French, Kenneth R., 1997. "Industry costs of equity," Journal of Financial Economics, Elsevier, vol. 43(2), pages 153-193, February.
- Eisfeldt, Andrea L. & Rampini, Adriano A., 2006. "Capital reallocation and liquidity," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 369-399, April.
- Robert E. Hall, 2001.
"The Stock Market and Capital Accumulation,"
American Economic Review,
American Economic Association, vol. 91(5), pages 1185-1202, December.
- Sherwin Rosen, 1972. "Learning by Experience as Joint Production," The Quarterly Journal of Economics, Oxford University Press, vol. 86(3), pages 366-382.
- 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.
- Dimitris Papanikolaou, 2008. "Investment-Specific Technological Change and Asset Prices," 2008 Meeting Papers 637, Society for Economic Dynamics.
- Adriano Rampini & Andrea Eisfeldt, 2005. "Financing Shortfalls and the Value of Aggregate Liquidity," 2005 Meeting Papers 889, Society for Economic Dynamics.
- 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.
- Gordon M Phillips & Vojislav Maksimovic, 1999. "The Market for Corporate Assets: Who Engages in Mergers and Asset Sales and are there Efficiency Gains?," Working Papers 99-12, Center for Economic Studies, U.S. Census Bureau.
- 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.
- Prescott, Edward C & Visscher, Michael, 1980. "Organization Capital," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 446-61, June.
When requesting a correction, please mention this item's handle: RePEc:red:sed009:671. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.