Inalienable Customer Capital, Corporate Liquidity and Stock Returns

Joint with Yan Ji, David Reibstein, Wei Wu

Journal of Finance (2021) Vol. 76, No.1, 211-265

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, thus damaging customer capital. Using a proprietary, granular brand-perception survey, we construct a measure of the firm-level inalienability of customer capital (ICC) that reflects 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.