Measuring Intangible Capital with Market Prices
72 Pages Posted: 20 Jun 2019 Last revised: 8 Jun 2022
Date Written: June 2019
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 10% 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.
Suggested Citation: Suggested Citation