Publications
Publications
- September 2023
- Journal of Political Economy Macroeconomics
Customer Churn and Intangible Capital
By: Scott R. Baker, Brian Baugh and Marco Sammon
Abstract
Intangible capital is a crucial and growing piece of firms’ capital structure, but many of its distinct components are difficult to measure. We develop and make available several new firm-level metrics regarding a key component of intangible capital – firms’ customer bases – using an increasingly common class of household transaction data. Linking household spending to customer-facing firms that make up over 30% of total household spending, we show that churn in customer bases is associated with lower markups and market-to-book ratios and higher leverage. Churn is closely linked to firm-level volatility and risk, both cross-sectionally and over time. This new measure provides a clearer picture of firms’ customer and brand capital than existing metrics like capitalized SG&A, R&D, or advertising expenditures and is also observable 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.
Keywords
Customer Base; Transaction Data; Customer Churn; Intangible Capital; Capital Structure; Measurement and Metrics; Customers
Citation
Baker, Scott R., Brian Baugh, and Marco Sammon. "Customer Churn and Intangible Capital." Journal of Political Economy Macroeconomics 1, no. 3 (September 2023): 447–505.