Intangible Capital, Corporate Valuation and Asset Pricing

Jean-Pierre Danthine and Xiangrong Jin

No 5897, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 form 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 level of macroeconomic volatility are compatible with highly variable corporate valuations, P/E ratios and stock returns.

Keywords: Intangible capital; Coporate valuation; Stock return volatility (search for similar items in EconPapers)
JEL-codes: D24 D50 G12 (search for similar items in EconPapers)
Date: 2006-10
New Economics Papers: this item is included in nep-acc and nep-bec
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Related works:
Journal Article: Intangible capital, corporate valuation and asset pricing (2007)
Working Paper: Intangible Capital, Corporate Valuation and Asset Pricing (2006)
Working Paper: Intangible Capital, Corporate Valuation and Asset Pricing (2006)
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