Intangible Capital and Customer Churn

By: Scott Baker, Brian Baugh and Marco Sammon

Format:Print
| Language:English

Abstract

Intangible capital is a crucial and growing piece of firms’ capital structure and helps to explain long run trends in concentration and markups. We develop new firm level metrics regarding a key component of intangible capital—customer churn—using a class of household transaction data that is increasingly available to researchers around the world. We show that customer attachment is associated with higher markups and market to book ratios and can help to explain many dimensions of firm-level volatility and risk in both real outcomes and asset prices. This new measure provides a more direct indicator of firms’ customer and brand capital than existing metrics like SG&A, R&D, or advertising expenditures and is also available for private firms. We demonstrate that low levels of customer churn push firms away from neoclassical investment responsiveness and that low churn firms are better able to insulate organization capital from the risk of key talent flight.