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Review of Quantitative Finance and Accounting

Erschienen in:

02.03.2016 | Original Research

Recognized intangibles and the present value of growth options

verfasst von: Michalis Makrominas

Erschienen in: Review of Quantitative Finance and Accounting | Ausgabe 2/2017

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Abstract

We investigate the relation of recognized intangibles, defined as acquired intangibles net of goodwill, and the market’s perception of firm growth options (PVGO). We find that: (a) on average recognized intangibles are positively associated with PVGO after controlling for intangible expenditures immediately expensed, firm specific characteristics, industry membership and systematic risk (b) the said relation is highly non-linear (negatively skewed) and more strongly pronounced in companies with lower accumulation of R&D Capital; recognized intangibles are not that significant at higher levels of PVGO and whereas firms have committed to in-house technological development, and (c) while adjusted levels of recognized intangibles increase approximately tenfold over the last 35 years their explanatory power to PVGO over the period generally wanes. Our results are informative for the interpretation of recognized intangibles as a summary balance sheet item and therefore useful to users of financial statements forming investment and credit decisions, to policy makers aiming at stimulating firm growth and to standard setters aiming at improving value relevance.

Vorheriger Artikel New evidence on the effect of belief heterogeneity on stock returns

Nächster Artikel Financial investor sentiment and the boom/bust in oil prices during 2003–2008

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The capitalization of software development costs under SFAS 86 is the only exception.

We thank an anonymous referee for suggesting this line of research.

Note that industry dummies are dropped since portfolios include firms from a number of industries.

We indicate that the result may not be attributed to the effect of outliers because: (a) all right hand side variables are truncated at 1 % on an annual basis, and (b) quintile regressions examine the range of distribution between the lower 5 % and upper 95 % of PVGO.

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Titel: Recognized intangibles and the present value of growth options
verfasst von: Michalis Makrominas
Publikationsdatum: 02.03.2016
Verlag: Springer US
Erschienen in: Review of Quantitative Finance and Accounting / Ausgabe 2/2017
Print ISSN: 0924-865X
Elektronische ISSN: 1573-7179
DOI: https://doi.org/10.1007/s11156-016-0552-6

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