By Yoram Brosh
Professor Baruch Lev, an accounting professor at New York University’s Leonard Stern School of Business led the way, pioneering the research into the Financial Value of Intangible Assets. He believes that Intangibles drive development and innovation, and that their disclosure is an asset to companies.
In the wake of Enron, WorldCom and others, academic studies by Lev and others strongly suggest that markets pay a premium for companies with strong corporate governance practices (governance being an intangible asset). The idea behind this being that such companies are less likely to announce surprise earnings shortfalls due to financial irregularities.
One of the strongest intangible assets a company can boast is innovativeness. This should be understood as different than the amount of money a company spends on R&D. For example: A small pharmaceutical company may generate more successful new commercial products than a larger one spending more money on R&D, due to its alliance with smart biotech partners.
Thus, companies failing to communicate the value of these intangible assets to investors might fall short of exercising full share price valuations. Studies support this assumption; whenever intangible assets communications programs are realized, other business benefits follow. When companies promote themselves as great places to work at, focusi on work/life balance, benefits and diversity programs, the resulting publicity will support employee recruitment/retention efforts.
Mounting a successful intangible assets communications program requires considerable thought, planning and effort. Such programs involve initial audits including extensive interviews with department heads, R&D execs, as well as with mid-level management. These “mining processes” help unveil and identify existing Intangible assets, and the story also appeals to business reporters at print, electronic and online media outlets.
If intangible assets drive up business capitalization by up to 50%, can any one afford to overlook them and not promote these assets?