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Decomposing firm value

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  • Belo, Frederico
  • Gala, Vito D.
  • Salomao, Juliana
  • Vitorino, Maria Ana

Abstract

What are the economic determinants of a firm’s market value? We answer this question through the lens of a generalized neoclassical model of investment with quasi-fixed labor and three heterogeneous capital inputs. We estimate the structural model using firm-level data on US firms and find that, on average and depending on the industry, installed labor force accounts for 14–21% of firms’ market value, physical capital accounts for 30–40%, knowledge capital accounts for 20–43%, and brand capital accounts for 6–25%. Our analysis provides direct empirical evidence for the importance of labor and intangible capital inputs for understanding firm value.

Suggested Citation

  • Belo, Frederico & Gala, Vito D. & Salomao, Juliana & Vitorino, Maria Ana, 2022. "Decomposing firm value," Journal of Financial Economics, Elsevier, vol. 143(2), pages 619-639.
    • Handle: RePEc:eee:jfinec:v:143:y:2022:i:2:p:619-639
    DOI: 10.1016/j.jfineco.2021.08.007
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    More about this item

    Keywords

    Valuation; Neoclassical investment; Structural estimation; Intangibles;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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