Measuring Intangible Capital with Market Prices

Current standards prohibit the capitalization of internally created intangibles, resulting in a downward bias of reported assets. We estimate a capitalization model using market prices of intangibles to estimate the parameters of the capital accumulation process. Two settings provide intangible asset values: publicly traded equity prices and exit prices. We use these parameters to estimate intangible capital stocks and subject them to an extensive set of validation tests that compare them with stocks estimated using existing parameters. Intangible stocks developed from exit price parameters outperform both stocks developed by publicly traded parameters and those stocks developed with existing estimates.