Measuring Intangible Capital with Market Prices
Ryan Peters and
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Michael Ewens: California Institute of Technology
No kvp2f, SocArXiv from Center for Open Science
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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