Intangible Value

56 Pages Posted: 31 Dec 2020 Last revised: 22 Jan 2021

See all articles by Andrea L. Eisfeldt

Andrea L. Eisfeldt

UCLA Anderson School of Management

Edward Kim

UCLA Anderson School of Management

Dimitris Papanikolaou

Northwestern University - Kellogg School of Management - Department of Finance; National Bureau of Economic Research (NBER)

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Date Written: October 28, 2020

Abstract

Intangible assets are absent from traditional measures of value, despite their very large (and growing) importance in firms' capital stocks. As a result, the fundamental anchor for value that uses book assets is mismeasured. We propose a simple improvement to the classic value factor (HML^FF) proposed by Fama and French (1992, 1993). Our intangible value factor, HML^INT, prices assets as well as or better than the traditional value factor but yields substantially higher returns. This outperformance holds over the entire sample, as well as in more recent decades in which value has underperformed. We show that this is likely due to the intangible value factor sorting more effectively on productivity, profitability, financial soundness, and on other valuation ratios such as price to earnings or price to sales.

Data and code can be downloaded here.

Keywords: Value investing, value factor, intangible assets, intangible capital

JEL Classification: G1, G10, G11, E22

Suggested Citation

Eisfeldt, Andrea L. and Kim, Edward and Papanikolaou, Dimitris, Intangible Value (October 28, 2020). Available at SSRN: https://ssrn.com/abstract=3720983 or http://dx.doi.org/10.2139/ssrn.3720983

Andrea L. Eisfeldt (Contact Author)

UCLA Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

HOME PAGE: http://https://sites.google.com/site/andrealeisfeldt/

Edward Kim

UCLA Anderson School of Management ( email )

United States

Dimitris Papanikolaou

Northwestern University - Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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