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How do intangible assets create economic value? an application to banks

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Author Info
Alfredo Martín-Oliver () (Universidad de Zaragoza)
Vicente Salas-Fumas () (Banco de España)

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Abstract

This paper examines the determinants of economic value and investment behavior of Spanish banks under the theory of investment for a multi-asset firm, focusing on three key issues: i) the distinction between immaterial and intangible assets and how each of them is related to the economic value of the firm; ii) the test of whether the accumulation of intangibles is a consequence of incurring adjustment costs or, on the contrary, intangibles are accumulated at no cost; iii) how to account for market power in the valuation of the multi-assets firm. The empirical results quantify the contribution of material, immaterial (information technology and advertising) and intangible (organization capital) assets to economic value of Spanish banks, separated from the contribution of market power. We find that intangible assets build up from adjustment costs of investments in IT and rents from market power split evenly the economic value of the bank above the replacement cost of material and immaterial assets.

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File URL: http://www.bde.es/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/07/Fic/dt0730e.pdf
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Publisher Info
Paper provided by Banco de España in its series Banco de España Working Papers with number 0730.

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Length: 38 pages
Date of creation: Oct 2007
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Handle: RePEc:bde:wpaper:0730

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Related research
Keywords: Intangibles; IT capital; adjustment costs; valuation of banks; investment of banks;

Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior

This paper has been announced in the following NEP Reports:

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