Organization Capital (OC) and Information Asymmetry: Evidence from OC Decomposition
62 Pages Posted: 25 May 2023 Last revised: 23 Jun 2023
Date Written: May 22, 2023
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
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