The Pricing of Acquired Intangibles

Abstract

This paper investigates the value relevance of acquired intangible assets using a comprehensive hand-collected dataset for 1,647 publicly listed US-firms from 2002 to 2018. This dataset allows us to disentangle acquired intangible assets into different classes (e.g., tech-, customer-, contract-, and marketing-intangible assets) and their respective economic lifetimes (i.e., definite vs indefinite useful lives) to test their relevance for equity investors. We predict and find positive associations for nearly all intangible assets, however with different economic significance. In particular, tech- and customer-related intangible assets are priced by equity investors. Furthermore, we find that definite intangible assets are more relevant than indefinite intangibles. These results are helpful for firms and their equity investors to understand the economic impact of intangible assets. Finally, the findings are particularly important for regulators given the recent proposition of the Financial Accounting Standards Board to subsume customer-related intangible assets and non-compete agreements into goodwill. While our results suggest that customer-related intangible assets are priced significantly by equity investors, this is not the case for non-compete agreements.

Keywords: Intangible assets, business combinations, equity pricing, valuation, standard setting

JEL Classification: G14, G32, M40, M41