Do intangibles matter for corporate policies? Evidence from organization capital and corporate payout choices

Abstract

Organization capital represents the stock of knowledge, capabilities, culture, and business processes, and systems that integrate human skills with physical capital to enhance organizational efficiency. We investigate whether and how a firm's payout choices are related to its level of organization capital. Using a large sample of U.S. firms during the period 1980–2017, we find that both the likelihood and the levels of cash dividend distribution and share repurchases are significantly higher for firms with more organization capital. Our findings hold up to a battery of robustness checks and endogeneity tests. We further explore related channels and find strong evidence that the positive association between organization capital and dividend payments (share repurchases) is largely attributable to agency problems (executive compensation incentives). We find weak evidence for the signaling argument for corporate payouts. Overall, we document that organization capital plays a central role in shaping corporate payout choices.