650 Newport Center Drive
Newport Beach, CA 92660
Institutional Affiliation: PIMCO
NBER Working Papers and Publications
|July 2019||Decomposing Firm Value|
with Frederico Belo, Juliana Salomao, Maria Ana Vitorino: w26112
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 physical capital, quasi-fixed labor, and two types of intangible capital, knowledge and brand capital as inputs. We estimate the structural model using firm-level data on U.S. publicly traded firms and use the estimated parameter values to infer the contribution of each input for explaining firm's market value in the last four decades. The model performs well in explaining both cross-sectional and time-series variation in firms' market values across industries, with a time-series R2 of up to 61%, and a cross-sectional R2 of up to 95%. The relative importance of each input for firm value varies across industries an...