Equity and the hidden factor land: a hypothesis

Abstract

Purpose

The paper seeks to develop a research hypothesis: although individual companies deviate, in an average observation equity seems to reflect the value of land, and profits appear to reflect the land rent‐earning capacity of the company's assets.

Design/methodology/approach

This hypothesis is based on a broad interpretation of the almost forgotten production factor – land, as an exclusive real option. The article substantiates the connection between equity and key assets preliminarily by considering samples of balance sheets of Germany and the UK.

Findings

The land rent (in a wide sense) is hidden in many cases and diffusing on assets with similar features as land. Access to land (in a broad sense) and the foundation of the profits on rents appear to be an essential base for sustainable performance of companies.

Originality/value

If the hypothesis holds true, equity is nothing other than indirect participation in land (in a broad sense), with impacts on many concepts. For instance, investment policy of pension funds had to be revised, since old‐age provision in stocks would be an indirect investment in land – but an economy as a whole cannot build its savings on land. A consequent taxation on land and other natural resources could replace business taxation. Only a sound endowment with equity opens the access to land and similar assets, which is a challenge for small and medium sized companies.

Citation

Loehr, D. (2013), "Equity and the hidden factor land: a hypothesis", Society and Business Review, Vol. 8 No. 2, pp. 107-118. https://doi.org/10.1108/SBR-01-2013-0004