Organizational Capital Revisited - How Adjustment Costs from Investment in IT Turn into Economic Value

Abstract

This paper integrates the RBV of the firm with the determinants of investment and economic valuation of multi assets firms. The common link is the existence of adjustment costs that Penrose viewed as limiting organizational growth. We examine situations where adjustment costs can turn into valuable intangible-organizational assets and examine how this situation modifies the valuation model of the firm in the presence of market power. We test the model with data on multiple assets invested by Spanish banks in the time period when these banks invest heavily in IT capital and the accompanying adjustment costs turn into valuable intangible assets. We find that for the representative bank, fifty seven percent of the economic value corresponds to the purchase cost of material and immaterial assets, twenty per cent to cost of build in intangibles from adjustment costs in IT investments, and twenty three per cent to rents from market power.