Intangible capital, corporate valuation and asset pricing
AbstractRecent studies have found unmeasured intangible capital to be large and important. In this paper we observe that by nature intangible capital is also very different from physical capital. We find it plausible to argue that the accumulation process for intangible capital differs significantly from the process by which physical capital accumulates. We study the implications of this hypothesis for rational firm valuation and asset pricing using a two-sector general equilibrium model. Our main finding is that the properties of firm valuation and stock prices are very dependent on the assumed accumulation process for intangible capital. If one entertains the possibility that intangible investments translates into capital stochastically, we find that plausible levels of macroeconomic volatility are compatible with highly variable corporate valuations, P/E ratios and stock returns.
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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 32 (2007)
Issue (Month): 1 (July)
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Web page: http://link.springer.de/link/service/journals/00199/index.htm
Other versions of this item:
- Jean-Pierre Danthine & Xiangrong JIN, 2006. "Intangible Capital, Corporate Valuation and Asset Pricing," Swiss Finance Institute Research Paper Series 06-18, Swiss Finance Institute.
- Danthine, Jean-Pierre & Jin, Xiangrong, 2006. "Intangible Capital, Corporate Valuation and Asset Pricing," CEPR Discussion Papers 5897, C.E.P.R. Discussion Papers.
- Jean-Pierre DANTHINE & Xiangrong JIN, 2006. "Intangible Capital, Corporate Valuation and Asset Pricing," Cahiers de Recherches Economiques du DÃ©partement d'EconomÃ©trie et d'Economie politique (DEEP) 06.05, Université de Lausanne, Faculté des HEC, DEEP.
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
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