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Regular version of the site

Article

Companies intangibles: Unique versus generic

International Review of Economics and Finance. 2017. Vol. 49. P. 266-275.

Purpose

In the era of the knowledge economy intangibles are recognized by investors as pivotal value drivers. This paper proposes an intangibles-based tool for picking companies with value growth potential.

Design/methodology/approach

We suggest a model to select companies that effectively use unique intangibles (in contrast to the generic intangibles). To test whether these results can be explained by skill we implement a bootstrap procedure. Companies that are able to use unique intangibles efficiently are combined in a portfolio.

Findings

Only 22% of companies have the skills to use unique intangibles, but all of them are characterized by the efficiency of their use. The created portfolio demonstrates a higher cumulative return, Sharpe ratio and lower drawdown than S&P500. We also find the increasing importance of intangibles for investors during the crisis.

Research limitations/implications

Both the created portfolio and the benchmark (S&P 500 index) are analyzed without transaction costs. Also the benchmark construction is based on equal-weighted sum of company M/B ratios.

Originality/value

We take into account the quality of intangibles (efficiency of unique intangibles use) while previous research of portfolio forming methods is based on quantity of intangibles.