Decomposing Firm Value / Frederico Belo, Vito Gala, Juliana Salomao, Maria Ana Vitorino.

Format:

Book

Author/Creator:

Belo, Frederico.

Contributor:

National Bureau of Economic Research.

Gala, Vito.

Salomao, Juliana.

Vitorino, Maria Ana.

Series:

Working Paper Series (National Bureau of Economic Research) no. w26112.

NBER working paper series no. w26112

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

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 physical capital, quasi-fixed labor, and two types of intangible capital, knowledge and brand capital as inputs. We estimate the structural model using firm-level data on U.S. publicly traded firms and use the estimated parameter values to infer the contribution of each input for explaining firm's market value in the last four decades. The model performs well in explaining both cross-sectional and time-series variation in firms' market values across industries, with a time-series R² of up to 61%, and a cross-sectional R² of up to 95%. The relative importance of each input for firm value varies across industries and over time. On average, physical capital accounts for 30% to 40% of firm's market value, installed labor force accounts for 14% to 22%, knowledge capital accounts for 20% to 43%, and brand capital accounts for 6% to 25%. The importance of physical capital for firm value decreased in the last decades, while the importance of knowledge capital increased, especially in high-tech industries. Overall, our analysis provides direct empirical evidence supporting models with multiple capital inputs as main sources of firm value, and shows the importance of the non-physical capital inputs for firm value.

Notes:

Print version record

July 2019.