Market Valuation of Intangible Asset: Evidence on SG&A Expenditure

The Accounting Review, Forthcoming

(Fox School of Business Research Paper No. 15-060)

55 Pages Posted: 4 Apr 2015 Last revised: 1 Feb 2019

See all articles by Rajiv D. Banker

Rajiv D. Banker

Temple University - Department of Accounting

Rong Huang

City University of New York (CUNY) - Stan Ross Department of Accountancy

Ramachandra (Ram) Natarajan

University of Texas at Dallas - Department of Accounting & Information Management

Sha Zhao

Oakland University - Department of Accounting and Finance

Date Written: January 14, 2019

Abstract

In this paper we investigate the stock market valuation of the intangible asset created by selling, general, and administrative (SG&A) expenditure. Although GAAP requires immediate expensing of SG&A, prior studies show that current SG&A generates future economic benefits, suggesting that it creates an intangible asset. We find that the contemporaneous stock market seems to recognize some of the intangible asset value implicit in SG&A. Positive subsequent returns can be earned in firms with a high SG&A intangible asset value. These excess returns are more likely due to investor mispricing than to risk compensation. Furthermore, we find that both analysts’ long-term growth forecast revisions and one-year-ahead forecast errors are positively associated with the future value created by current SG&A, indicating that analysts partially incorporate the intangible SG&A asset value into their forecasts. Overall, the evidence suggests that the capital market only partially recognizes the intangible asset value created by SG&A expenditure.

Keywords: SG&A expenditure; intangible asset; market valuation; analyst forecast

JEL Classification: G14, M40

Suggested Citation

Banker, Rajiv D. and Huang, Rong and Natarajan, Ramachandra (Ram) and Zhao, Sha, Market Valuation of Intangible Asset: Evidence on SG&A Expenditure (January 14, 2019). The Accounting Review, Forthcoming; (Fox School of Business Research Paper No. 15-060). Available at SSRN: https://ssrn.com/abstract= or http://dx.doi.org/10.2139/ssrn.2589319

Rajiv D. Banker

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States

Rong Huang (Contact Author)

City University of New York (CUNY) - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States
(646)312-3204 (Phone)

Ramachandra (Ram) Natarajan

University of Texas at Dallas - Department of Accounting & Information Management ( email )

2601 North Floyd Road
Richardson, TX 75083-0688
United States
972-883-2739 (Phone)

Sha Zhao

Oakland University - Department of Accounting and Finance ( email )

339 Elliott Hall
275 Varner Drive
Rochester, MI Michigan 48309-4401
United States

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