A New Approach to the Valuation of Intangible Capital

37 Pages Posted: 29 Jun 2004

See all articles by Jason G. Cummins

Jason G. Cummins

Brevan Howard Asset Management LLP

Multiple version iconThere are 2 versions of this paper

Date Written: April 2004


Intangible capital is not a distinct factor of production as is physical capital or labor. Rather, it is the "glue" that creates value from other factor inputs. This perspective naturally suggests an empirical model in which intangible capital is defined in terms of adjustment costs. My estimates of these adjustment costs from firm-level panel data suggest that no appreciable intangibles are associated with R&D and advertising, whereas, information technology creates intangibles with a 72% annual rate of return - a sizable figure that is nevertheless much smaller than that reported in previous studies. To build a bridge to previous research, I show that much larger estimates can be obtained with ordinary least squares, a method that ignores the possibility that the value of the firm and its investment policy are simultaneously determined.

Keywords: Organizational capital, intellectual property, adjustment costs

JEL Classification: D24, E22

Suggested Citation

Cummins, Jason Gustav, A New Approach to the Valuation of Intangible Capital (April 2004). FEDS Working Paper No. 2004-17. Available at SSRN: https://ssrn.com/abstract=559461 or http://dx.doi.org/10.2139/ssrn.559461

Jason Gustav Cummins (Contact Author)

Brevan Howard Asset Management LLP ( email )

London, SW1Y 6XA
United Kingdom

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