Organizational Friction, Asset Pricing, and the Term Structure of Mispricing: A Conceptual Framework

This paper outlines a conceptual framework linking organizational dynamics to asset pricing. The firm is viewed as a bounded system where finite individual time endowments are aggregated, transformed into value flows, and partially lost through internal frictions. Four core indicators are defined: the network anchoring coefficient (C), the structural extraction rate (η), non‑monetary reflow efficiency (γ), and the theoretical reflow signal‑to‑noise ratio (SNRTheory). While the first three can be approximated using standard financial statements, SNRTheory remains an unobservable latent construct. Their collective empirical links to tail risk and stock returns are explored in companion work using observable proxies (SNRNLP for sentiment and OFM for friction momentum). Using these mechanisms, we sketch a discounted valuation framework (D‑LVR) that extends conventional DCF by including an endogenous discount rate reflecting extraction risk and signal clarity; this adjustment is heuristic and intended to capture first‑order effects of organizational friction. A scale‑invariant price‑to‑earnings adjustment (LV‑PE) and a structural value factor (LV‑PE*) are proposed for cross‑sectional tests. Four organizational archetypes are identified, each with distinct return and risk profiles. The framework generates testable hypotheses about how organizational extraction predicts future returns and tail risk. All structural parameters are illustrative; full calibration is left to future research. The framework offers a unified perspective on the relationship between internal organizational processes and capital market valuations, while providing a manipulation‑resistant approach to quantifying the social (S) pillar of ESG.