Measuring Organisation Capital at the Firm Level: A Production Function Approach

Organisation capital is a key intangible asset, driving innovation and firm performance. Measuring this asset is notoriously difficult. This paper applies a firm-level production function approach including, in addition to labour and tangible assets, investment in all measurable intangible assets (technological and non-technological knowledge, software and databases, firm-specific human capital, brand equity), excluding the difficult to measure organisation capital. The residuum of the estimation is considered as a measure of a firm's organisation capital. We exclude profits from the output measure to avoid distortion due to the market structure in which a firm operates. Using panel data from the German innovation survey, we find higher organisation capital in young and small firms. We link this result to trust as a main element of organisation capital, which is easier to build-up in smaller and more agile organisations where interactions are more direct. Our measure negatively correlates with a firm's perception of internal organisational problems while it shows a u-shaped relation to indicators of organisational development. This result suggests that firms with low organisation capital try to overcome this shortcoming by putting more efforts into organisational development while firms with high organisation capital possess a better ability to improve their organisational capabilities.

Trunschke, Markus, Christian Rammer and Felix Roth (2020), Measuring Organisation Capital at the Firm Level: A Production Function Approach, ZEW Discussion Paper No. 20-021, Mannheim.