Customer Churn and Intangible Capital

78 Pages Posted: 20 May 2020 Last revised: 31 Oct 2022

See all articles by Scott R. Baker

Scott R. Baker

Northwestern University, Kellogg School of Management, Department of Finance; National Bureau of Economic Research (NBER)

Brian Baugh

University of Nebraska at Lincoln

Marco Sammon

Harvard Business School

Date Written: October 31, 2022

Abstract

Intangible capital is a crucial and growing piece of firms' capital structure, but the multitude of distinct components are difficult to measure. We develop and make available several new firm-level metrics regarding a key component of intangible capital -- firms' customer bases -- using an increasingly common class of household transaction data. Linking household spending to customer-facing firms that make up over 30% of consumer spending, we show that churn in customer bases is associated with lower markups and market-to-book ratios and higher leverage. Churn is closely linked to firm-level volatility and risk, both cross-sectionally and over time. This new measure provides a clearer picture of firms' customer and brand capital than existing metrics like capitalized SG&A, R&D, or advertising expenditures and is also observable for private firms. We demonstrate that low levels of customer churn push firms away from neoclassical investment responsiveness and that low churn firms are better able to insulate organization capital from the risk of key talent flight.

Keywords: customer base, customers, transaction data, customer churn

JEL Classification: D22, E22, G32, L11

Suggested Citation

Baker, Scott R. and Baugh, Brian and Sammon, Marco, Customer Churn and Intangible Capital (October 31, 2022). Available at SSRN: https://ssrn.com/abstract=3605582 or http://dx.doi.org/10.2139/ssrn.3605582

Scott R. Baker (Contact Author)

Northwestern University, Kellogg School of Management, Department of Finance ( email )

Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Brian Baugh

University of Nebraska at Lincoln ( email )

Lincoln, NE 68588
United States

Marco Sammon

Harvard Business School ( email )

Boston, MA 02163
United States

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