Intangible Assets and Stock Returns (Japanese)

Using Japanese listed companies' research and development (R&D) investment and stock prices, we empirically examine how R&D capital stock held by firms are related to their stock returns. Our empirical result based on the sorted portfolio, which is constructed by using the ratio of firms' R&D capital stock to total assets (R&D intensity), shows that such R&D intensity has a positive correlation with excess return on the stock price. This result suggests that short-sighted investors tend to underestimate the stock prices of firms that actively invest in intangible assets because they neglect future benefits arising from intangibles.