Intangibles

Employee Satisfaction and Stock Returns

By |March 24th, 2022|ESG, Intangibles, Research Insights, Factor Investing, Larry Swedroe, Academic Research Insight, Machine Learning, Behavioral Finance|

“Employees are our greatest asset” is a phrase often heard from companies. However, due to accounting rules requiring that most expenditures related to employees be treated as costs and expensed as incurred, the value of employees is an intangible asset that does not appear on any balance sheet. That leaves the interesting question of whether employee satisfaction provides information on future returns.

Factor Investing: Are Internally Generated Intangibles Worthless?

By |March 3rd, 2022|Intangibles, Research Insights, Factor Investing, Larry Swedroe, Academic Research Insight|

As mind-bending as it sounds, although a company’s internally generated intangible investments generate future value, they are currently not accepted as assets under US GAAP. Omission of this increasingly important class of assets reduces the usefulness and relevance of financial statement analysis that uses book value. In fact, Amitabh Dugar and Jacob Pozharny, authors of the December 2020 study “Equity Investing in the Age of Intangibles,” concluded that the relationship between financial variables and contemporaneous stock prices has weakened so much for high intangible intensity companies in both the U.S. and abroad that investors can no longer afford to ignore the changes in the economic environment created by intangibles.

Factor Investing: Is a Human Capital Factor on the Horizon?

By |February 17th, 2022|Intangibles, Research Insights, Factor Investing, Larry Swedroe, Academic Research Insight|

Taken together, our results suggest that firms’ personnel expenditures reflect not just the cost of labor in the current period but also the investment in human capital contained within that cost, and that market participants fail to fully understand the opportunity and efficacy of human capital development embedded in the disclosure of the expense.

Does the Market Efficiently Price the Value of Brands?

By |December 9th, 2021|Intangibles, Research Insights, Factor Investing, Larry Swedroe|

Despite the fact that a company’s internally generated intangible investments create future value, under current U.S. generally accepted accounting principles, internally developed intangibles are not included in reported assets. While research and development is an important intangible asset, so too is branding. Omission of an increasingly important class of assets reduces the usefulness and relevance of financial statement analysis that uses book value. 

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