The Measurement of Firm-Specific Organization Capital

42 Pages Posted: 20 Mar 2003 Last revised: 1 Nov 2010

See all articles by Baruch Lev

Baruch Lev

New York University - Stern School of Business

Suresh Radhakrishnan

JSOM, University of Texas at Dallas

Date Written: March 2003

Abstract

We develop a firm-specific measure of organization capital and estimate it for a sample of approximately 250 companies. We test the validity of the organization capital measure within a widely used investment valuation model and show that our organization capital estimate contributes significantly to the explanation of market values of firms, beyond assets in place and expected abnormal earnings (growth potential). We then examine whether capital markets are efficient with respect to organization capital, namely whether stock prices fully reflect the value of this resource. We find that while investors recognize the importance of organization capital, they do not fully factor its value into equity prices. We ascribe this fault or market inefficiency to poor disclosure of information about intangible capital.

Suggested Citation

Lev, Baruch Itamar and Radhakrishnan, Suresh, The Measurement of Firm-Specific Organization Capital (March 2003). NBER Working Paper No. w9581. Available at SSRN: https://ssrn.com/abstract=389452

Baruch Itamar Lev

New York University - Stern School of Business ( email )

40 West 4th Street, Suite 400
New York, NY 10012
United States
212-998-0028 (Phone)
212-995-4001 (Fax)

HOME PAGE: http://www.baruch-lev.com

Suresh Radhakrishnan (Contact Author)

JSOM, University of Texas at Dallas ( email )

Mail Stop SM 41
800 West Campbell Road
Richardson, TX 75080
United States
972-883-4438 (Phone)
972-883-6811 (Fax)

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