Measuring Intangible Capital with Market Prices

Abstract

Existing standards prohibit disclosures of internally created intangible capital to firm balance
sheets, resulting in a downward bias of reported assets. To characterize off-balance sheet
intangible assets, we use transaction prices to estimate this missing intangible capital. On average,
our new measure of intangible capital is 15% smaller than prior estimates while varying
more by industry. These estimates better explain market values, increase HML portfolio returns,
act as a better proxy for human capital and brand rankings, and exhibit a strong association
with patent values.

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

JEL Classification: G30, G32, G34,O34