Why is it so Hard to Value Intangibles? Evidence from Investments in High-Technology Start-Ups

Gavin Reid and Julia Smith

No 806, CRIEFF Discussion Papers from Centre for Research into Industry, Enterprise, Finance and the Firm

Abstract: The paper uses a range of primary-source empirical evidence to address the question: ‘why is it to hard to value intangible assets?’ The setting is venture capital investment in high technology companies. While the investors are risk specialists and financial experts, the entrepreneurs are more knowledgeable about product innovation. Thus the context lends itself to analysis within a principal-agent framework, in which information asymmetry may give rise to adverse selection, pre-contract, and moral hazard, post-contract. We examine how the investor might attenuate such problems and attach a value to such high-tech investments in what are often merely intangible assets, through expert due diligence, monitoring and control. Qualitative evidence is used to qualify the more clear cut picture provided by a principal-agent approach to a more mixed picture in which the ‘art and science’ of investment appraisal are utilised by both parties alike.

Keywords: venture capital; high technology; accounting information; intangible assets; financial reporting. (search for similar items in EconPapers)
JEL-codes: G11 G24 M41 O3 (search for similar items in EconPapers)
Date: 2008-06
New Economics Papers: this item is included in nep-acc, nep-cfn, nep-cta, nep-ent and nep-ino
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Working Paper: Why is it so Hard to Value Intangibles? Evidence from Investments in High-Technology Start-Ups (2008)
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