The intangible shift: Redefining the dynamics of market-to-book ratios

Peter Cheng, Lin Li, Wilson H.S. Tong and Chingfu Tsai

Journal of Corporate Finance, 2025, vol. 94, issue C

Abstract: We demonstrate that a persistent pattern exists in the evolution of the MTB ratio from 1999 to 2023, wherein firms with high (low) MTB ratios tend to maintain those levels over time. The persistence of the MTB ratio is independent of industry effects and cannot be well explained by accounting performance. Intangible investment plays a crucial role in determining the MTB ratio, and its persistence is primarily maintained through continued internal intangible investment rather than external mergers and acquisitions. Moreover, although U.S. firms have increased their investment in intangible assets over the past 25 years, the gap between high- and low-MTB firms in intangible investment has widened. Our results suggest that the basis of stock value has shifted from tangible to intangible investments over time.

Keywords: Market-to-book ratio; Return-on-equity; Value persistence; Abnormal earnings; Intangible investment (search for similar items in EconPapers)
JEL-codes: G12 G30 G32 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:94:y:2025:i:c:s092911992500118x

DOI: 10.1016/j.jcorpfin.2025.102850

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