Intangible Assets and the Book‐To‐Market Effect

Abstract

The book‐to‐market effect is well known but prior research does not analyze the impact of goodwill and related transformations in accounting rules that may bring significant changes to the effect. This paper analyzes the impact of SFAS 142, Goodwill and Other Intangible Assets, issued in 2001. I find that the book‐to‐market effect is weaker in the post‐SFAS 142 period, especially in firms that have goodwill, impairment loss, or risk. The book‐to‐market effect is stronger for subsamples of firms that do not have goodwill. These findings are robust to size groups, different factor models, and test methods.

Keywords: fair value accounting, goodwill impairment, R&D valuation, value premium