Organization capital is a production factor that is embodied in the firm's key talent and has an efficiency that is firm specific. Hence, both shareholders and key talent have a claim to its cash ...flows. We develop a model in which the outside option of the key talent determines the share of firm cash flows that accrue to shareholders. This outside option varies systematically and renders firms with high organization capital riskier from shareholders' perspective. We find that firms with more organization capital have average returns that are 4.6% higher than firms with less organization capital.
Complex Asset Markets EISFELDT, ANDREA L.; LUSTIG, HANNO; ZHANG, LEI
The Journal of finance (New York),
October 2023, Letnik:
78, Številka:
5
Journal Article
Recenzirano
ABSTRACT
Investors' individual arbitrage models introduce idiosyncratic risk into complex asset strategies, driving up average returns and Sharpe ratios. However, despite the attractive risk‐return ...trade‐off, participation is limited. This is because effective Sharpe ratios in complex asset markets vary with investors' expertise. Investors with higher expertise, better models, and lower resulting idiosyncratic risk exposures realize higher Sharpe ratios. Their demand deters entry by less sophisticated investors. As predicted by our model, market dislocations are characterized by an increase in idiosyncratic risk, investor exit, and persistently elevated alphas and Sharpe ratios. The selection effect from higher expertise agents' more favorable Sharpe ratios is unique to our model and key to our main results.
Intangible capital which relies on essential human inputs, or 'organization capital,' presents a unique challenge for measurement. Organization capital cannot be fully owned by firms' financiers, ...because it is partly embodied in key labor inputs. Instead, cash flows must be shared with key talent and thus neither book nor market values will fully capture its value. Measurement of organization capital requires a model featuring these unique property rights. We use accounting data along with a simple example of such a model to measure the fraction of the US capital stock which is missing from book and market values.
The Economics of Intangible Capital Crouzet, Nicolas; Eberly, Janice C.; Eisfeldt, Andrea L. ...
The Journal of economic perspectives,
07/2022, Letnik:
36, Številka:
3
Journal Article
Recenzirano
Odprti dostop
Intangible assets are a large and growing part of firms’ capital stocks. Intangibles are accumulated via investment—foregoing consumption today for output in the future—but they lack a physical ...presence. Rather than stopping with this “lack,” we instead focus on the positive properties of intangibles. Specifically, intangibles must be stored, so characteristics of the storage medium have important implications for their value and use. These properties include non-rivalry, allowing the intangible to be used simultaneously in different production streams, and limited excludability, which prevents the firm from capturing all the benefits or rents from the intangible. We develop these ideas in a simple way to illustrate how outcomes such as scalability and distribution of ownership follow. We discuss how intangibles can help to understand important trends in macroeconomics and finance, including productivity, factor shares, inequality, investment and valuation, rents and market power, and firm financing.
There is widespread concern about whether Chief Executive Officers (CEOs) are appropriately punished for poor performance. While CEOs are more likely to be forced out if their performance is poor ...relative to the industry average, overall industry performance also matters. This seems puzzling if termination is disciplinary, however, we show that both absolute and relative performance-driven turnover can be natural and efficient outcomes in a competitive assignment model in which CEOs and firms form matches based on multiple characteristics. The model also has new predictions about replacement managers' equilibrium pay and performance. We document CEO turnover events during 1992–2006 and provide empirical support for our model.
The Cross Section of MBS Returns DIEP, PETER; EISFELDT, ANDREA L.; RICHARDSON, SCOTT
The Journal of finance (New York),
October 2021, 2021-10-00, 20211001, Letnik:
76, Številka:
5
Journal Article
Recenzirano
ABSTRACT
We present a simple, linear asset pricing model of the cross section of Mortgage‐Backed Security (MBS) returns. MBS earn risk premia as compensation for their exposure to prepayment risk. We ...measure prepayment risk and estimate risk loadings using prepayment forecasts versus realizations. Estimated loadings on prepayment risk decrease monotonically in securities' coupons relative to the par coupon, consistent with the predicted effect of prepayment on bond value. Prepayment risk appears to be priced by specialized MBS investors. The price of prepayment risk changes sign over time with the sign of a representative MBS investor's exposure to prepayment shocks.
US data display aggregate external financing and savings waves. Firms can allocate costly external finance to productive capital, or to liquid assets with low physical returns. If firms raise costly ...external finance and accumulate liquidity, either the cost of external finance is relatively low or the total return to liquidity accumulation, including its shadow value as future internal funds, is particularly high. We formalize this intuition by estimating a dynamic model of firms׳ financing and savings decisions, and use our model along with firm level data to construct an empirical estimate of the average cost of external finance from 1980 to 2014.
•Provide external finance cost time series using firm financing and savings decisions.•Estimated average cost of external finance is 2.3%.•Provide evidence of external finance cost shocks.•Formally reject nested model without external finance cost shocks.•Document external finance and savings waves.
This paper studies the financing role of leasing and secured lending. We argue that the benefit of leasing is that repossession of a leased asset is easier than foreclosure on the collateral of a ...secured loan, which implies that leasing has higher debt capacity than secured lending. However, leasing involves agency costs due to the separation of ownership and control. More financially constrained firms value the additional debt capacity more and hence lease more of their capital than less constrained firms. We provide empirical evidence consistent with this prediction. Our theory is consistent with the explanation of leasing by practitioners, namely that leasing "preserves capital," which the academic literature considers a fallacy.
OTC Intermediaries Eisfeldt, Andrea L; Herskovic, Bernard; Rajan, Sriram ...
The Review of financial studies,
02/2023, Letnik:
36, Številka:
2
Journal Article
Recenzirano
Abstract
We study the effect of dealer exit on prices and quantities in a model of an over-the-counter market featuring a core-periphery network with bilateral trading costs. The model is calibrated ...using regulatory data on the entire U.S. credit default swap (CDS) market between 2010 and 2013. Prices depend crucially on the risk-bearing capacity of core dealers, yet unlike standard models featuring a dealer sector, we allow for heterogeneity in dealer risk-bearing capacity. This heterogeneity is quantitatively important. Depending on how well dealers share risk, the exit of a single dealer can cause credit spreads to rise by 8 $\%$ to 24$\%$.
The market value of U.S. single‐family rental assets totals more than $2.3 trillion. We provide the first systematic analysis of total returns to single‐family rentals in a long, broad, and granular ...panel. Total returns are approximately equalized across U.S. cities at 8.5%, similar to average equity returns. On average, net rental yields and house price appreciation each contribute half total returns. However, they are negatively correlated in the cross section of cities. High‐price‐tier cities accrued more capital gains, whereas low‐price‐tier cities had higher net rental yields. Within cities, lower‐price‐tier ZIP codes have higher total returns.
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