A New Approach to the Valuation of Intangible Capital / Jason G. Cummins.

Format:

Book

Author/Creator:

Cummins, Jason G.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w9924.

NBER working paper series no. w9924

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2003.

Summary:

In this paper, I argue that intangible capital is not a distinct input to production like physical capital or labor but rather it is the glue that creates value from other inputs. This perspective naturally leads to an empirical model in which intangible capital is defined in terms of adjustment costs. Estimates of these adjustment costs using firm-level panel data suggest that there are no appreciable intangibles associated with R&D and advertising whereas information technology creates intangibles with a 70% annual rate of return a sizable figure that is nevertheless much smaller than reported in previous studies. As a bridge to previous research, I show that much larger estimates can be obtained by using ordinary least squares, which ignores the possibility that the value of the .rm and its investment policy are simultaneously determined. Larger estimates can also be obtained by ignoring the possibility that the stock market overstates the value of intangible-intensive companies.

Notes:

Print version record

August 2003.