Inalienable Customer Capital, Corporate Liquidity, and Stock Returns

The Rodney L. White Center Working Papers Series at the Wharton School

Mays Business School Research Paper No. 3187850

61 Pages Posted: 15 Jun 2018 Last revised: 15 Aug 2019

See all articles by Winston Dou

Winston Dou

The Wharton School, University of Pennsylvania

Yan Ji

Hong Kong University of Science & Technology (HKUST)

David Reibstein

Marketing Science Institute; University of Pennsylvania - Marketing Department

Wei Wu

Texas A&M University - Department of Finance

Date Written: July 31, 2019

Abstract

We develop a model in which customer capital depends on key talents' contribution and pure brand recognition. Customer capital guarantees stable demand but is fragile to financial constraints risk if retained mainly by talents, who tend to quit financially constrained firms, thus damaging customer capital. Using a proprietary, granular brand-perception survey, we construct a measure of the firm-level inalienability of customer capital (ICC) that reflects the degree to which customer capital depends on talents. Firms with higher ICC have higher average returns, higher talent turnover, and more precautionary financial policies. The ICC-sorted long-short portfolio's spread comoves with financial constraints factor.

Keywords: Brand loyalty, Financial constraints risk, Inalienable human capital, Talent turnover, Marketing

JEL Classification: G12, G30, M31, M37, E22

Suggested Citation

Dou, Winston and Ji, Yan and Reibstein, David and Wu, Wei, Inalienable Customer Capital, Corporate Liquidity, and Stock Returns (July 31, 2019). The Rodney L. White Center Working Papers Series at the Wharton School; Mays Business School Research Paper No. 3187850. Available at SSRN: https://ssrn.com/abstract=3187850 or http://dx.doi.org/10.2139/ssrn.3187850

Winston Dou (Contact Author)

The Wharton School, University of Pennsylvania ( email )

2318 Steinberg Hall - Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States

Yan Ji

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

David Reibstein

Marketing Science Institute ( email )

1000 Massachusetts Ave.
Cambridge, MA 02138-5396
United States

University of Pennsylvania - Marketing Department

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States

Wei Wu

Texas A&M University - Department of Finance ( email )

360M Wehner
College Station, TX 77843-4218
United States
979-862-8092 (Phone)

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