TY  - JOUR
AU  - Hulten,Charles R.
AU  - Hao,Xiaohui
TI  - What is a Company Really Worth? Intangible Capital and the "Market to Book Value" Puzzle
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14548
PY  - 2008
Y2  - December 2008
UR  - http://www.nber.org/papers/w14548
L1  - http://www.nber.org/papers/w14548.pdf
N1  - Author contact info:
Charles R. Hulten
Department of Economics
University of Maryland
Room 3105, Tydings Hall
College Park, MD 20742
Tel: 301/405-3549
Fax: 301/405-3542
E-Mail: hulten@econ.umd.edu

Xiaohui (Janet) Hao
The Conference Board
845 Third Avenue
New York, NY 10022
E-Mail: Janet.Hao@conference-board.org
AB  - "What is a company really worth?" is a question asked repeatedly during the recent financial crisis. Attention has been focused on short-term valuation issues, like the "mark-to-market" controversy. Sorting out these issues is complicated by the fact that the market puts a value on shareholder equity that is consistently more than twice the reported book value of a company. Numerous observers have pointed to the absence of most intangible assets from financial statements as an important source of this puzzle. We use Compustat financial data for 617 R&D intensive firms to test this possibility. We find that conventional book value alone explains only 31 percent of the market capitalization of these firms in 2006, and that this increases to 75 percent when our estimates of intangible capital are included. The debt-equity ratio also falls from 1.46 to 0.61. These findings suggest that financial reports tend to substantially understate the long-run intrinsic value of corporate America.
ER  -