Should Intangible Investments Be Reported Separately or Commingled with Operating Expenses? New Evidence

Management Science, Forthcoming

49 Pages Posted: 16 Jan 2016 Last revised: 17 Jan 2017

Luminita Enache

Tuck School of Business at Dartmouth

Anup Srivastava

Tuck School of Business at Dartmouth

Date Written: January 17, 2017

Abstract

We propose a new method to estimate intangible investment outlays, other than expenditures on advertising and research and development, that are reported on a commingled basis with operating expenses in the selling, general, and administrative (SG&A) category of expenses. These outlays, aimed at improving organizational knowledge and capabilities, are the largest category of intangible investments and the fastest-growing category of operating investments. They affect future firm performance and risk. Predictability of future earnings and stock returns improves when these outlays are distinguished from operating expenses. Thus, benefits could accrue from reporting them separately.

Keywords: SG&A; mandatory disclosures; intangible investments; R&D; organizational capital; risk-return trade-offs; fundamental analysis; stock returns

Suggested Citation

Enache, Luminita and Srivastava, Anup, Should Intangible Investments Be Reported Separately or Commingled with Operating Expenses? New Evidence (January 17, 2017). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2715722

Luminita Enache (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States
6037297148 (Phone)

HOME PAGE: http://https://www.tuck.dartmouth.edu/faculty/faculty-directory/luminita-enache

Anup Srivastava

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States

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