Misvaluation of New Trademarks
67 Pages Posted: 15 Aug 2018 Last revised: 15 Jan 2019
Date Written: January 14, 2019
We examine valuation of one type of intangible assets, trademarks, which are registered when new products/services are commercially in use. We find that firms with more newly registered trademarks earn significantly higher future abnormal stock returns, which are largest for the first year after registration. The return predictability is stronger in harder-to-value firms: larger, more opaque firms; firms with higher analyst earnings forecast dispersion, lower advertising expenses, and higher R&D spending; and firms with trademarks in new product/service categories. The evidence suggests that the stock market undervaluation of new trademarks is greater where the costs of paying attention is higher.
Keywords: Trademarks, Exploratory Trademarks, Stock Returns, Limited Attention, Uncertainty, Market Efficiency
JEL Classification: E22, G11, G12, G14, O34, M31
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