Intangible Value Factor

Intangible assets derive largely from investments in employees, brand and knowledge that are expensed rather than booked. Despite large and growing importance of intangible assets, traditional measures of firm value ignore them. Are firm value assessments therefore defective? In their October 2020 paper entitled “Intangible Value”, Andrea Eisfeldt, Edward Kim and Dimitris Papanikolaou evaluate a value factor that includes intangible assets in book equity for each firm (HML^INT) following exactly the methodology used to construct the widely accepted Fama-French value factor (HML^FF). They measure intangible assets based on flows of Selling, General, and Administrative (SG&A) expenses. Using firm accounting data and associated monthly stock returns and Fama-French 5-factor model data for a broad sample of U.S. stocks during January 1975 through December 2018, they find that:

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