Decomposing firm value

Frederico Belo; Vito D. Gala; Juliana Salomao; Maria-Ana Vitorino

doi:10.1016/j.jfineco.2021.08.007

Decomposing firm value

Frederico Belo, Vito D. Gala, Juliana Salomao, Maria-Ana Vitorino

Research output: Contribution to journal › Article › peer-review

17 Scopus citations

Abstract

What are the economic determinants of a firm's market value? We answer this question through the lens of a generalized neoclassical model of investment with quasi-fixed labor and three heterogeneous capital inputs. We estimate the structural model using firm-level data on US firms and find that, on average and depending on the industry, installed labor force accounts for 14–21% of firms’ market value, physical capital accounts for 30–40%, knowledge capital accounts for 20–43%, and brand capital accounts for 6–25%. Our analysis provides direct empirical evidence for the importance of labor and intangible capital inputs for understanding firm value.

Original language	English (US)
Journal	Journal of Financial Economics
DOIs	https://doi.org/10.1016/j.jfineco.2021.08.007
State	Accepted/In press - 2021
Externally published	Yes

Bibliographical note

Funding Information:
This work was supported by Open Fund (PLN201615) of State Key Laboratory of Oil and Gas Reservoir Geology and Exploitation (Southwest Petroleum University), National Natural Science Foundation of China (No. 51502146, U1404506), Natural Science Foundation of Henan Department of Education (No. 14A150021), Scientific Research Starting Project of SWPU (No. 2015QHZ001), and Young Scholars Development Fund of SWPU (No. 201499010100).

Publisher Copyright:
© 2021

Keywords

Intangibles
Neoclassical investment
Structural estimation
Valuation

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10.1016/j.jfineco.2021.08.007

Cite this

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title = "Decomposing firm value",

abstract = "What are the economic determinants of a firm's market value? We answer this question through the lens of a generalized neoclassical model of investment with quasi-fixed labor and three heterogeneous capital inputs. We estimate the structural model using firm-level data on US firms and find that, on average and depending on the industry, installed labor force accounts for 14–21% of firms{\textquoteright} market value, physical capital accounts for 30–40%, knowledge capital accounts for 20–43%, and brand capital accounts for 6–25%. Our analysis provides direct empirical evidence for the importance of labor and intangible capital inputs for understanding firm value.",

keywords = "Intangibles, Neoclassical investment, Structural estimation, Valuation",

author = "Frederico Belo and Gala, {Vito D.} and Juliana Salomao and Maria-Ana Vitorino",

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journal = "Journal of Financial Economics",

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AU - Belo, Frederico

AU - Gala, Vito D.

AU - Salomao, Juliana

AU - Vitorino, Maria-Ana

N1 - Funding Information: This work was supported by Open Fund (PLN201615) of State Key Laboratory of Oil and Gas Reservoir Geology and Exploitation (Southwest Petroleum University), National Natural Science Foundation of China (No. 51502146, U1404506), Natural Science Foundation of Henan Department of Education (No. 14A150021), Scientific Research Starting Project of SWPU (No. 2015QHZ001), and Young Scholars Development Fund of SWPU (No. 201499010100). Publisher Copyright: © 2021

PY - 2021

Y1 - 2021

N2 - What are the economic determinants of a firm's market value? We answer this question through the lens of a generalized neoclassical model of investment with quasi-fixed labor and three heterogeneous capital inputs. We estimate the structural model using firm-level data on US firms and find that, on average and depending on the industry, installed labor force accounts for 14–21% of firms’ market value, physical capital accounts for 30–40%, knowledge capital accounts for 20–43%, and brand capital accounts for 6–25%. Our analysis provides direct empirical evidence for the importance of labor and intangible capital inputs for understanding firm value.

AB - What are the economic determinants of a firm's market value? We answer this question through the lens of a generalized neoclassical model of investment with quasi-fixed labor and three heterogeneous capital inputs. We estimate the structural model using firm-level data on US firms and find that, on average and depending on the industry, installed labor force accounts for 14–21% of firms’ market value, physical capital accounts for 30–40%, knowledge capital accounts for 20–43%, and brand capital accounts for 6–25%. Our analysis provides direct empirical evidence for the importance of labor and intangible capital inputs for understanding firm value.

KW - Intangibles

KW - Neoclassical investment

KW - Structural estimation

KW - Valuation

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JO - Journal of Financial Economics

JF - Journal of Financial Economics

ER -

Decomposing firm value

Abstract

Bibliographical note

Keywords

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