Keywords: Organizational capital, intellectual property, adjustment costs.
Abstract: Intangible capital is not a distinct factor of production as is physical capital or
labor. Rather it is the "glue" that creates value from other factor inputs. This
perspective naturally suggests an empirical model in which intangible capital is
defined in terms of adjustment costs. My estimates of these adjustment costs
from firm-level panel data suggest that no appreciable intangibles are associated
with R&D and advertising, whereas information technology creates intangibles
with a 72% annual rate of return--a sizable figure that is nevertheless much
smaller than that reported in previous studies. To build a bridge to previous
research, I show that much larger estimates can be obtained with ordinary least
squares, a method that ignores the possibility that the value of the firm and its
investment policy are simultaneously determined.
Full paper (345 KB PDF)
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Last update: April 22, 2004