Inalienable Customer Capital, Corporate Liquidity, and Stock Returns

78 Pages Posted: 15 Jun 2018 Last revised: 17 Feb 2021

See all articles by Winston Dou

Winston Dou

The Wharton School, University of Pennsylvania

Yan Ji

Hong Kong University of Science & Technology (HKUST)

David Reibstein

University of Pennsylvania - Marketing Department

Wei Wu

Texas A&M University

Date Written: February 16, 2021

Abstract

We develop a model in which customer capital depends on key talents' contribution and pure brand recognition. Customer capital guarantees stable demand but is fragile to financial constraints risk if retained mainly by talents, who tend to quit financially constrained firms, damaging customer capital. Using a proprietary, granular brand-perception survey, we construct a firm-level measure of the inalienability of customer capital (ICC) that captures the degree to which customer capital depends on talents. Firms with higher ICC have higher average returns, higher talent turnover, and more precautionary financial policies. The ICC-sorted long-short portfolio's spread comoves with financial constraints factor.

Keywords: Brand loyalty, Financial constraints risk, Inalienable human capital, Talent turnover, Marketing

JEL Classification: G12, G30, M31, M37, E22

Suggested Citation

Dou, Winston and Ji, Yan and Reibstein, David and Wu, Wei, Inalienable Customer Capital, Corporate Liquidity, and Stock Returns (February 16, 2021). Journal of Finance, 2021, Vol. 76, No.1, 211-265, The Rodney L. White Center Working Papers Series at the Wharton School, Mays Business School Research Paper No. 3187850, Jacobs Levy Equity Management Center for Quantitative Financial Research Paper, Available at SSRN: https://ssrn.com/abstract=3187850 or http://dx.doi.org/10.2139/ssrn.3187850

Winston Dou (Contact Author)

The Wharton School, University of Pennsylvania ( email )

2318 Steinberg Hall - Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States

Yan Ji

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

David Reibstein

University of Pennsylvania - Marketing Department

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States

Wei Wu

Texas A&M University ( email )

360M Wehner
College Station, TX 77843-4218
United States
979-862-8092 (Phone)

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