Intangible capital, corporate valuation and asset pricing
Abstract
Recent 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.(This abstract was borrowed from another version of this item.)
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Bibliographic Info
Article provided by Springer in its journal Economic Theory.
Volume (Year): 32 (2007)
Issue (Month): 1 (July)
Pages: 157-177
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Web page: http://link.springer.de/link/service/journals/00199/index.htm
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Related research
Keywords: Intangible capital; Corporate valuation; Stock return volatility; D24; D50; G12;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 Département d'Econométrie 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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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Che, Natasha Xingyuan, 2009.
"Sectoral Structural Change in a Knowledge Economy,"
MPRA Paper
19653, University Library of Munich, Germany.
- Che, Natasha Xingyuan, 2009. "Sectoral Structural Change in a Knowledge Economy," MPRA Paper 19839, University Library of Munich, Germany.
- Hiroki Arato & Katsunori Yamada, 2010.
"Japan's Intangible Capital and Valuation of Corporations in a Neoclassical Framework,"
ISER Discussion Paper
0772, Institute of Social and Economic Research, Osaka University, revised Nov 2011.
- Hiroki Arato & Katsunori Yamada, 2012. "Japan's Intangible Capital and Valuation of Corporations in a Neoclassical Framework," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(4), pages 459-478, October.
- Kegiang Hou & Alok Johri, 2013. "Intangible Capital and the Excess Volatility of Aggregate Profits," Department of Economics Working Papers 2013-04, McMaster University.
- Che, Natasha Xingyuan, 2009. "The great dissolution: organization capital and diverging volatility puzzle," MPRA Paper 13701, University Library of Munich, Germany.
- Stephen Parente & Anne Villamil, 2007. "Edward C. Prescott’s contributions to economics: guest editors’ introduction," Economic Theory, Springer, vol. 32(1), pages 1-5, July.
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