Working Paper: NBER ID: w28056
Authors: Andrea L. Eisfeldt; Edward Kim; Dimitris Papanikolaou
Abstract: Intangible assets are absent from traditional measures of firm value despite their growing importance in firms' capital stocks. We propose a simple improvement to the classic Fama and French (1992, 1993) value factor that incorporates intangibles and addresses differences in accounting practices across industries. Our intangible value factor prices assets as well as or better than the traditional value factor but yields substantially higher returns. This outperformance holds over the entire sample period, including in more recent decades during which value has underperformed. We show that the intangible value factor sorts more effectively within industries on productivity, profitability, financial soundness, and on other valuation ratios such as price-to-earnings.
Keywords: Intangible assets; Value investing; Firm valuation
JEL Codes: E22; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| inclusion of intangible assets in valuation (O34) | higher returns (G12) |
| HMLint (Y60) | HMLff (Y20) |
| intangible assets (O34) | improved valuation metrics (G32) |
| higher intangible capital stocks (E22) | superior productivity and profitability (O49) |
| growing importance of intangible assets (O34) | investment performance (G11) |