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.
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.
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.
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.
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