Working Paper: NBER ID: w30829
Authors: Wanchien Chiu; Ravi Jagannathan; Kevin Tseng
Abstract: We decompose the difference between a firm’s market and book values into two components: intangible assets that can be created by competing firms through SG&A/R&D expenditures, and the residual denoted as franchise value (FV). The estimated parameters in the model for creating intangible assets by capitalizing R&D/SG&A expenditures vary significantly across industries. Consistent with FV being a measure of economic rents and quasi-rents, ceteris paribus, higher FV firms face fewer product market threats, have higher markups, and their investments are less sensitive to their total Tobin’s Q. In contrast, firms with higher capitalized intangible assets, face higher product market threats.
Keywords: Franchise Value; Intangibles; Tobin's Q
JEL Codes: G00; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| franchise value (G32) | product market threats (L17) |
| franchise value (G32) | markups (D43) |
| markups (D43) | product market threats (L17) |
| franchise value (G32) | investment sensitivity to Tobin's q (G31) |
| capitalized intangible assets (O34) | intangible capital (E22) |
| intangible capital (E22) | franchise value (G32) |