Measuring Intangible Capital with Market Prices

63 Pages Posted: 27 Nov 2018 Last revised: 27 Oct 2023

See all articles by Michael Ewens

Michael Ewens

Columbia Business School; National Bureau of Economic Research (NBER)

Ryan H. Peters

Tulane University - Finance & Economics

Sean Wang

Southern Methodist University (SMU) - Accounting Department

Multiple version iconThere are 2 versions of this paper

Date Written: October 27, 2023


Accounting standards prohibit internally created knowledge and organizational capital from being disclosed on firm balance sheets. As a result, balance sheets exhibit downward biases that have become exacerbated by increasing levels of intangible investments. To offset these biases, researchers must estimate the value of these off-balance sheet intangibles by capitalizing prior flows of R&D and SG&A. In doing so, a set of capitalization parameters must be assumed, i.e., the R&D depreciation rate and the fraction of SG&A that represents a long-lived asset. We estimate these parameters using market prices from firm exits and use them to capitalize intangibles for a comprehensive panel of firms from 1978-2017. We then use a series of validation tests to examine the performance of our intangible capital stocks versus those developed from commonly used parameters. On average, our estimates of intangible capital are 15% smaller than estimates from status-quo parameters while exhibiting larger variation across industry. Intangible capital stocks derived from exit price parameters outperform existing measures when explaining market enterprise values and identifying human capital risk. Adjusting book values with exit-based intangible capital stocks markedly attenuates well-documented biases in market-to-book and return on equity ratios while increasing the precision of the HML asset pricing factor. We conclude that our capitalization parameters create intangible stocks that perform equal to or better than status-quo measures in various applications.

Keywords: Intangible capital, organization capital, depreciation, knowledge capital, R&D, acquisitions

JEL Classification: G30, G32, G34,O34

Suggested Citation

Ewens, Michael and Peters, Ryan H. and Wang, Sean, Measuring Intangible Capital with Market Prices (October 27, 2023). Available at SSRN: or

Michael Ewens (Contact Author)

Columbia Business School ( email )

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732 Kravis Hall
New York, NY 10027
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National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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Ryan H. Peters

Tulane University - Finance & Economics ( email )

A.B. Freeman School of Business
7 McAlister Drive
New Orleans, LA 70118
United States

Sean Wang

Southern Methodist University (SMU) - Accounting Department ( email )

United States
2147682858 (Phone)

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