Sweat Equity in U.S. Private Business

Anmol Bhandari and Ellen McGrattan

No 560, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: This paper uses theory disciplined by U.S. national accounts and business census data to measure private business sweat equity, which is the value of time to build customer bases, client lists, and other intangible assets. We estimate an aggregate sweat equity value of 0.65 times GDP, with little cross-sectional dispersion in valuations when compared to business net incomes and large cross-sectional dispersion in rates of return. Our estimate of sweat equity is close to the estimate of marketable fixed assets used in production by private businesses, implying a high ratio of intangible to total assets. We use the model to evaluate the impact of greater tax compliance of private businesses and lower tax rates on the net income of both privately held and publicly traded businesses.

Keywords: Business valuation; Intangibles (search for similar items in EconPapers)
JEL-codes: E13 E22 H25 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2017-11-20
New Economics Papers: this item is included in nep-acc, nep-dge and nep-mac
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https://www.minneapolisfed.org/research/sr/sr560.pdf Full text (application/pdf)

Related works:
Working Paper: Sweat Equity in U.S. Private Business (2018)
Working Paper: Sweat Equity in U.S. Private Business (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:560

DOI: 10.21034/sr.560

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