Organization Capital (OC) and Information Asymmetry: Evidence from OC Decomposition

62 Pages Posted: 25 May 2023 Last revised: 23 Jun 2023

See all articles by Muskan Chawla

Muskan Chawla

University of California, Los Angeles (UCLA) - Anderson School of Management

Henry L. Friedman

University of California, Los Angeles (UCLA) - Anderson School of Management

Jessica Kim-Gina

University of California, Los Angeles (UCLA) - Accounting Area

Date Written: May 22, 2023

Abstract

We examine the relation between organization capital (OC) and information asymmetry manifested in insider trading profits. Risky payoffs from OC investments can create private information, but OC is also associated with management practices that lower agency problems. Empirically, we find that OC is positively associated with information asymmetry. Splitting the OC measure into advertising- and non-advertising-related components, we find that our results are mainly driven by non-advertising-related OC. Supporting construct validity, we map our input- based measures into output-based measures of intangible assets related to brands and human capital, captured in M&A transactions and ESG scores. Lastly, we find that OC, especially non- advertising-related OC, is associated with a lower likelihood of management forecasts and lower readability of financial statements. Overall, we highlight OC as a source of private information and contribute to the measurement of intangible assets by decomposing OC into brand and human capital related components.

Keywords: intangible capital, information asymmetry, knowledge capital, organization capital, insider trading, disclosure

Suggested Citation

Chawla, Muskan and Friedman, Henry L. and Kim-Gina, Jessica, Organization Capital (OC) and Information Asymmetry: Evidence from OC Decomposition (May 22, 2023). Available at SSRN: https://ssrn.com/abstract=4456404 or http://dx.doi.org/10.2139/ssrn.4456404

Muskan Chawla (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

HOME PAGE: http://www.muskanchawla.com

Henry L. Friedman

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Jessica Kim-Gina

University of California, Los Angeles (UCLA) - Accounting Area ( email )

D410 Anderson Complex
Los Angeles, CA 90095-1481
United States

HOME PAGE: http://sites.google.com/view/kim-gina

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