Access to this document was granted through an Emerald subscription provided by 405387 [] For AuthorsIf you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation.Abstract The inefficient valuation of the intangible determinants of the financial position of business companies may result in significant damages for both firms and their stakeholders. Based on the empirical literature in accounting and finance, this paper suggests possible reasons for the inefficient valuation of intangibles, provides explanations for the existence of biases in analysts' earnings forecasts and proposes alternative ways for the improvement of the resource allocation mechanisms in the capital markets.
This study utilizes firm-specific time-series data to estimate the economic value of the research and development (R&D) expenditures that investors consider an asset to the firm. The study uses a modification of the Ohlson (1995) model to estimate the persistence of abnormal earnings, the proportion of current R&D expenditures that represents a source of future benefits to the firm and the amortization rate of that asset. The parameters are estimated from time-series data of market and book values of equity, earnings and R&D expenditures. The study further compares the firm-specific estimates with those resulting from an application of a cross-sectional estimation procedure based on all available companies in the sample and industry-specific sub-samples. Results indicate the existence of significant differences in some two-digit SIC code industries between the time-series and the cross-sectional estimates of the parameters and the economic value of the R&D asset. Differences in the capitalization parameter are associated with the growth in R&D, the profitability of the firm, R&D intensity and the concentration of the industry. Differences in the persistence of earnings are related to the concentration ratio. Finally, differences in the estimated economic value of the R&D asset are associated with the profitability of the company as measured by its return on assets. We further compare the associations between the three different estimates of the R&D asset and subsequent stock returns, as well as the contemporaneous difference between the market and book value of companies. Results indicate that the time-series estimates of the R&D asset show stronger associations with both variables, followed by the intra-industry and the cross-industry cross-sectional estimates. Overall, our results provide evidence that market participants behave as if R&D expenditures have significant future economic benefits to the firm, and show that the cross-sectional and time-series approaches followed when assessing its economic value provide significantly different estimates.
Fundamental analysis is aimed at assessing the intrinsic value of companies based on publicly available accounting information. Thus, the main purpose of fundamental analysis research should be identifying the main determinants of value, establishing empirical relations between them and fundamental accounting variables, and finally, predicting the future behavior of such variables to estimate the value of the firm. Traditional fundamental analysis ignores the existence of some intangible assets, such as intellectual capital, that are currently considered as the main determinants of value. Human capital is an essential component of intellectual capital. This paper provides evidence on the extent to which the quality of human resources is related to the value of accounting variables that are used in fundamental analysis due to their perceived usefulness as proxies for investors' expectations on the firm's future profitability and growth in both, earnings and shareholders' equity.
An overwhelming literature on intangibles has been published over past three decades. Based on the evidence provided by recent research studies and the experiences of companies and policy makers this article provides a summary of our current knowledge on intangibles and suggests some directions for future research and for the improvement of management and reporting practices, as well as of policy making.
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