A Simple Approach to Valuing Intangibles and Rents
We decompose the gap between a firm’s market and book values into capitalized-intangible-assets and a residual, consisting of value of capacity-adjustment-costs, economic-rents and potential mispricing. Our estimated parameter-values for capitalizing expenditures creating intangible-assets are consistent with values reported in the literature, even though we use a different approach. Firms with higher residuals have higher profitability and markups, lower labor share, face fewer product market threats, exhibit less sensitivity of investment to traditional as well as intangibles-adjusted Tobin’s Q, and benefited more from globalization during this century. This is consistent with there being a significant ex post rents-component in the residual.
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