The Funding of Organizational and Brand Capital

Project: Research

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Organizational capital refers the knowledge or information accumulated by a firm over time. It is an asset that affects the technology of production (Prescott and Visscher, 1980; Atkeson and Kehoe, 2005). Unlike physical or human capital, most organizational capital is an “intangible” asset, not recordable on the books (Jovanovic, Rousseau, 2001). Recently, Lev and Radhakrishnan (2004) use reported selling, general, and administrative expenses (SGA) as a proxy for organizational capital and find that organizational capital is value-relevant. Eisfeldt and Papanikolaou (2010) accumulate SGA to construct an organizational capital stock measure. Fee, Hadlock, and Pierce (2008) examines advertising spending and foreign cash flow for U.S. stocks. Advertising is another type of spending that build up intangible capital, i.e., brand capital.This project aims to examine the sources of funding for the accumulation of organizational capital and brand capital over time. Broadly speaking, the literature classifies funding for corporate activities into two categories, internal and external. Internal funding refers to operating cash flow. External funding refers to debt or equity issuance. The existing literature is silent on the funding of organizational capital, while the funding of other major corporate activities such as capital investment, acquisition, R&D, and changes in cash holdings have been extensively studied.The accumulation of information on organizational capital takes time and therefore is closely related to the life-cycle of firms and the evolution of industrial sectors. In this study, we will explore the financing patterns of the organizational capital of firms during different life-stages. We will also explore issues related to financial constraints, financial development, and degree of openness by comparing the accumulation of organizational capital in developed and emerging markets.


Project number7008142
Grant typeSRG
Effective start/end date1/05/125/03/15