Inferring the Value of Intangible Assets

This paper examines whether financial statement analysis can be effective in inferring the intangible value of firms.

Author(s):

Georgios Angelopoulos

Athens University of Economics and Business

Daniel Giamouridis

Research Associate, EDHEC-Risk Institute

Orestes Vlismas

Athens University of Economics and Business

We measure the intangible value by means of a firm’s Intellectual Capital, which encompasses the intangible assets and the organizational knowledge of a firm that are not reported directly by financial statements. Our analysis decomposes Intellectual Capital into its three primary components: Human Capital, Structural Capital, and Relational Capital. We study each component separately and create an aggregate index, the IC_SCORE, which classifies firms relative to their Intellectual Capital. We find that the IC_SCORE is a significant predictor of the future cross-section of equity returns. Firms with high Intellectual Capital outperform firms with low Intellectual Capital for up to two years in the future. A longshort strategy based on the IC_SCORE earns significant excess returns of the magnitude of over a minimum of 0.84 percent per month. The results are robust for alternative risk adjustment procedures and in partitions of size and book-to-market.

Type: Working paper
Date: le 05/03/2012
Research Cluster : Finance

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