U.S. Macroeconomic Analysis

Tangible investment dropped from 11.1% of business output in 1947 to 10.0% in 2007, while intangible investment increased from 4.5% of business output to 13.7% during the same period.

Cross-Country Analysis

Wealthier countries seem to invest greater proportions in intangible assets. As intangible assets are an important driver of firm innovation and profitability, it is unsurprising to find the direct relationship between intangible investment and the growth of labor productivity. Intangible capital, rather than tangible capital or labor quality, explains why labor productivity grew much faster in the US than in Europe from 1995 to 2006.

U.S. Firm Analysis

By current accounting standards, outlays towards intangible assets, from research & development to marketing and branding, are only written off as current expenses. 

But once we begin to think of the significant role intangible assets play in firms, one begins to question the understatement of firm value.

As an example, a panel of 633 R&D – intensive firms possessed over 40% of total assets in the form of intangible assets, ranging from R&D and brand equity to organizational structure and worker training.

In the valuation of publically traded firms, one of the continually puzzling phenomena is the gap between book value and market value. Ideally, book value should equal market value, indicating that the inherent value of the firm is reflected in the price of its shares. However, this is hardly the case, and intangible assets may in fact play a large role in this continual gap.

What is an Intangible Asset?

Traditionally, assets can be touched or seen, such as machines, equipments, vehicles and buildings. In the modern economy, however, many assets cannot be touched or seen, such as research and development (R&D), brand equity and human resources.

Intangible investment includes a wide array of spending, including expenditures towards human capital, scientific research, product research and development, market development, and organizational and management efficiency.

It is often useful to break down the types of intangible assets into three essential groups: economic competencies, innovative property, and computerized information:

Research

Our research covers three fields:

• Intangible assets in the macro U.S. in the past 60 years
  How Do You Measure a "Technological Revolution?",
  (Carol A. Corrado, Charles R. Hulten)
• Intangible assets of U.S. firms from 1997 to 2008
  What Is a Company Really Worth? Intangible Capital and the "Market to Book Value" Puzzle 
  (Charles R. Hulten, Janet X. Hao)
• Intangible assets across countries from 1995 to 2006
  Measuring Intangible Capital and its Contribution to Economic Growth in Europe 
  (Bart van Ark, Janet X. Hao, Carol A. Corrado, Charles R. Hulten)