IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/9924.html
   My bibliography  Save this paper

A New Approach to the Valuation of Intangible Capital

Author

Listed:
  • Jason G. Cummins

Abstract

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.

Suggested Citation

  • Jason G. Cummins, 2003. "A New Approach to the Valuation of Intangible Capital," NBER Working Papers 9924, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:9924
    Note: EFG PR
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w9924.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Erik Brynjolfsson & Loren Hitt & Shinkyu Yang, 2002. "Intangible Assets: How the Interaction of Computers and Organizational Structure Affects Stock Market Valuations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(1), pages 137-198.
    2. Stephen Bond, 2000. "Noisy Share Prices and the Q Model of Investment," Econometric Society World Congress 2000 Contributed Papers 1320, Econometric Society.
    3. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
    4. Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," NBER Working Papers 5067, National Bureau of Economic Research, Inc.
    5. Zvi Griliches, 1998. "Issues in Assessing the Contribution of Research and Development to Productivity Growth," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 17-45, National Bureau of Economic Research, Inc.
    6. Ellen R. McGrattan & Edward C. Prescott, 2000. "Is the stock market overvalued?," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Fall), pages 20-40.
    7. Timothy F. Bresnahan & Erik Brynjolfsson & Lorin M. Hitt, 2002. "Information Technology, Workplace Organization, and the Demand for Skilled Labor: Firm-Level Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 339-376.
    8. Jerry Hausman, 2001. "Mismeasured Variables in Econometric Analysis: Problems from the Right and Problems from the Left," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 57-67, Fall.
    9. Jeffrey I. Bernstein & M. Ishaq Nadiri, 1989. "Research and Development and Intra-industry Spillovers: An Empirical Application of Dynamic Duality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(2), pages 249-267.
    10. Jaffe, Adam B, 1986. "Technological Opportunity and Spillovers of R&D: Evidence from Firms' Patents, Profits, and Market Value," American Economic Review, American Economic Association, vol. 76(5), pages 984-1001, December.
    11. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    12. Robert E. Hall, 2001. "The Stock Market and Capital Accumulation," American Economic Review, American Economic Association, vol. 91(5), pages 1185-1202, December.
    13. Hayashi, Fumio & Inoue, Tohru, 1991. "The Relation between Firm Growth and Q with Multiple Capital Goods: Theory and Evidence from Panel Data on Japanese Firms," Econometrica, Econometric Society, vol. 59(3), pages 731-753, May.
    14. Prescott, Edward C & Visscher, Michael, 1980. "Organization Capital," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 446-461, June.
    15. Mark E. Doms & Wendy F. Dunn & Stephen D. Oliner & Daniel E. Sichel, 2004. "How Fast Do Personal Computers Depreciate? Concepts and New Estimates," NBER Chapters, in: Tax Policy and the Economy, Volume 18, pages 37-80, National Bureau of Economic Research, Inc.
    16. Martin Neil Baily, 1981. "Productivity and the Services of Capital and Labor," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 1-66.
    17. Hall, Bronwyn H., 1993. "Industrial Research During the 1980s: Did the Rate of Return Fall?," Department of Economics, Working Paper Series qt33d879r9, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    18. Jacques Mairesse & Bronwyn H. Hall, 1996. "Estimating the Productivity of Research and Development: An Exploration of GMM Methods Using Data on French & United States Manufacturing Firms," NBER Working Papers 5501, National Bureau of Economic Research, Inc.
    19. Stephen R. Bond & Jason G. Cummins, 2000. "The Stock Market and Investment in the New Economy: Some Tangible Facts and Intangible Fictions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(1), pages 61-124.
    20. Bronwyn H. Hall, 1993. "Industrial Research during the 1980s: Did the Rate of Return Fall?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2 Microec), pages 289-343.
    21. Leonard I. Nakamura, 1999. "Intangibles: what put the new in the new economy?," Business Review, Federal Reserve Bank of Philadelphia, issue Jul, pages 3-16.
    22. Hempell, Thomas, 2003. "Do Computers Call for Training? Firm-level Evidence on Complementarities Between ICT and Human Capital Investments," ZEW Discussion Papers 03-20, ZEW - Leibniz Centre for European Economic Research.
    23. repec:hoo:wpaper:e-93-10 is not listed on IDEAS
    24. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    25. Michael T. Kiley, 2000. "Stock prices and fundamentals in a production economy," Finance and Economics Discussion Series 2000-05, Board of Governors of the Federal Reserve System (U.S.).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Supriyo De & Dilip Dutta, 2007. "Impact of Intangible Capital on Productivity and Growth: Lessons from the Indian Information Technology Software Industry," The Economic Record, The Economic Society of Australia, vol. 83(s1), pages 73-86, September.
    2. Alfredo Martín-Oliver & Vicente Salas-Fumas, 2007. "How do intangible assets create economic value? an application to banks," Working Papers 0730, Banco de España.
    3. O'Mahony, Mary & Vecchi, Michela, 2009. "R&D, knowledge spillovers and company productivity performance," Research Policy, Elsevier, vol. 38(1), pages 35-44, February.
    4. Carol Corrado & Charles Hulten & Daniel Sichel, 2005. "Measuring Capital and Technology: An Expanded Framework," NBER Chapters, in: Measuring Capital in the New Economy, pages 11-46, National Bureau of Economic Research, Inc.
    5. Sergey Lychagin & Joris Pinkse & Margaret E. Slade & John Van Reenen, 2016. "Spillovers in Space: Does Geography Matter?," Journal of Industrial Economics, Wiley Blackwell, vol. 64(2), pages 295-335, June.
    6. Hall, Bronwyn H. & Mairesse, Jacques & Mohnen, Pierre, 2010. "Measuring the Returns to R&D," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 2, chapter 0, pages 1033-1082, Elsevier.
    7. Bond, Stephen & Harhoff, Dietmar & Van Reenen, John, 2003. "Corporate R&D and productivity in Germany and the United Kingdom," LSE Research Online Documents on Economics 770, London School of Economics and Political Science, LSE Library.
    8. HOSONO Kaoru & MIYAKAWA Daisuke & TAKIZAWA Miho & YAMANOUCHI Kenta, 2016. "Complementarity and Substitutability between Tangible and Intangible Capital: Evidence from Japanese firm-level data," Discussion papers 16024, Research Institute of Economy, Trade and Industry (RIETI).
    9. Bronwyn H. Hall, 2006. "R&D, productivity and market value," IFS Working Papers W06/23, Institute for Fiscal Studies.
    10. Caggese, Andrea, 2007. "Testing financing constraints on firm investment using variable capital," Journal of Financial Economics, Elsevier, vol. 86(3), pages 683-723, December.
    11. Ugur, Mehmet & Trushin, Eshref & Solomon, Edna & Guidi, Francesco, 2016. "R&D and productivity in OECD firms and industries: A hierarchical meta-regression analysis," Research Policy, Elsevier, vol. 45(10), pages 2069-2086.
    12. Montresor, Sandro & Vezzani, Antonio, 2015. "The production function of top R&D investors: Accounting for size and sector heterogeneity with quantile estimations," Research Policy, Elsevier, vol. 44(2), pages 381-393.
    13. Nicholas Bloom & Raffaella Sadun & John Van Reenen, 2012. "Americans Do IT Better: US Multinationals and the Productivity Miracle," American Economic Review, American Economic Association, vol. 102(1), pages 167-201, February.
    14. Florian Pelgrin & Arnaud Sylvain & Eric Heyer, 2003. "Durées d'utilisation des facteurs et fonction de production : une estimation par la méthode des moments généralisés en système," Working Papers hal-00972839, HAL.
    15. Carol Corrado & Charles Hulten & Daniel Sichel, 2009. "Intangible Capital And U.S. Economic Growth," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(3), pages 661-685, September.
    16. Francesco Venturini & Ana Rincon-Aznar & Dr Michela Vecchi, 2013. "ICT as a general purpose technology: spillovers, absorptive capacity and productivity performance," National Institute of Economic and Social Research (NIESR) Discussion Papers 416, National Institute of Economic and Social Research.
    17. Erik Brynjolfsson & Lorin M. Hitt, 2003. "Computing Productivity: Firm-Level Evidence," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 793-808, November.
    18. Yosuke Okada, 2005. "Competition and Productivity in Japanese Manufacturing Industries," NBER Working Papers 11540, National Bureau of Economic Research, Inc.
    19. Ornaghi, Carmine, 2006. "Spillovers in product and process innovation: Evidence from manufacturing firms," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 349-380, March.
    20. Okada, Yosuke, 2005. "Competition and productivity in Japanese manufacturing industries," Journal of the Japanese and International Economies, Elsevier, vol. 19(4), pages 586-616, December.

    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:9924. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.