Market Valuation of Intangible Asset: Evidence on SG&A Expenditure
The Accounting Review, Forthcoming
55 Pages Posted: 4 Apr 2015 Last revised: 1 Feb 2019
Date Written: January 14, 2019
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: Suggested Citation