Decomposing Firm Value

What are the economic determinants of a firm’s market value? The authors answer this question through the lens of a generalized neoclassical model of investment with quasi-fixed labor and three heterogeneous capital inputs. The authors estimate the structural model using firm-level data on US firms and find that, on average, installed labor force accounts for 14% to 22% of firms’ market value, physical capital accounts for 30% to 40%, knowledge capital accounts for 20% to 43%, and brand capital accounts for 6% to 25%. The authors' analysis provides direct empirical evidence for the importance of labor and intangible capital inputs for understanding firm value.