The Impact of Intangible Assets on Market Value of Firms: Evidence from Pakistan’s Stock Exchange

Abstract

This study estimates the economic value of intangible assets (IAs) on the market values (MVs) of firms. The IAs play an important role in the future development and success of firms. A firm having more IAs and Research and Development (R&D) expenditures can be more innovative and competitive in the production of goods and service delivery. Therefore, this study finds the impacts of IAs on the MVs by taking a sample of 66 firms listed on Pakistan’s Stock Exchange (PSX) from the period 2007 to 2014. For empirical analysis, the conventional Fixed Effect, Random Effect and Generalized Method of Moment (GMM) models are applied on annual data. The results depict that IAs have increased the MVs of firms in Pakistan. Moreover, leverage ratio and managerial efficiency have also increased the MVs while the expenditures on marketing and advertising have decreased the MVs of firms. This study suggests that firms’ managers can increase investment in the accumulation of IAs for maximization of the MVs. Moreover, the investors and other market participants should also look at the level of IAs before investing in stocks as well as other determinants, especially leverage and managerial efficiency. The value relevance of leverage has also been a worthy policy recommendation for Pakistani firms. So, there is a scope for increasing the debt ratio for the shareholders’ value maximization.