Intangible Capital, Corporate Valuation and Asset Pricing

29 Pages Posted: 3 Oct 2006

See all articles by Jean-Pierre Danthine

Jean-Pierre Danthine

University of Lausanne - Institute of Banking and Finance (IBF); Centre for Economic Policy Research (CEPR); Swiss Finance Institute

Xiangrong Jin

Hong Kong Monetary Authority

Multiple version iconThere are 2 versions of this paper

Date Written: September 12, 2006

Abstract

Recent studies have found unmeasured intangible capital to be large and important.

In this paper we observe that by nature intangible capital is also very different from physical capital. We find it plausible to argue that the accumulation process for intangible capital differs significantly from the process by which physical capital accumulates. We study the implications of this hypothesis for rational firm valuation and asset pricing using a two-sector general equilibrium model. Our main finding is that the properties of firm valuation and stock prices are very dependent on the assumed accumulation process for intangible capital. If one entertains the possibility that intangible investments translates into capital stochastically, we find that plausible levels of macroeconomic volatility are compatible with highly variable corporate valuations, P/E ratios and stock returns.

Keywords: Intangible capital, corporate valuation, stock return volatility

JEL Classification: D24, D50, G12

Suggested Citation

Danthine, Jean-Pierre and Jin, Xiangrong, Intangible Capital, Corporate Valuation and Asset Pricing (September 12, 2006). Swiss Finance Institute Research Paper No. 06-18, Available at SSRN: https://ssrn.com/abstract=932046 or http://dx.doi.org/10.2139/ssrn.932046

Jean-Pierre Danthine (Contact Author)

University of Lausanne - Institute of Banking and Finance (IBF) ( email )

Lausanne, 1015
Switzerland
+41 21 692 3485 (Phone)
+41 21 692 3335 (Fax)

HOME PAGE: http://www.hec.unil.ch/jdanthine/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Swiss Finance Institute ( email )

c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

Xiangrong Jin

Hong Kong Monetary Authority ( email )

3 Garden Road, 30th Floor
Hong Kong
China

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