Customer Churn and Intangible Capital

Abstract

We develop and make available firm-level metrics regarding a key component of intangible capital—firms’ customer bases—using household transaction data. Linking household spending to top customer-facing firms, we show that churn in customer bases is associated with lower markups and market-to-book ratios and higher leverage. Churn is closely linked to firm-level volatility and risk. This new measure provides a clearer picture of firms’ customer and brand capital than existing metrics and is also observable for private firms. We demonstrate that low levels of customer churn push firms away from neoclassical investment responsiveness and that low-churn firms are better able to insulate organization capital from the risk of key-talent flight.