Measuring Intangible Capital with Market Prices

Michael Ewens, Ryan H. Peters, Sean Wang

NBER Working Paper No. 25960
Issued in June 2019, Revised in January 2020
NBER Program(s):Corporate Finance Program, Productivity, Innovation, and Entrepreneurship Program

Existing standards prohibit disclosures of internally created intangible capital to firm balance sheets, resulting in a downward bias of reported assets. To characterize off-balance sheet intangible assets, we use transaction prices to estimate this missing intangible capital. On average, our new measure of intangible capital is 10% smaller than prior estimates, while varying more by industry. These estimates better explain market values, increase HML portfolio returns, act as a better proxy for human capital and brand rankings, and exhibit a strong association with patent values.

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Acknowledgments

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Document Object Identifier (DOI): 10.3386/w25960