Intangible investments and the cost of equity capital.

摘要

Corporate intangible investments are aimed at creating intangible assets such as technology, human capital, brands, and business processes. While intangibles are widely recognized as primary value drivers for more and more firms in the era of "new economy", little is known in the literature about the cost of equity capital for financing intangible investments. I provide empirical evidence on this issue in my dissertation.; I first classify intangible investments into two groups: R&D investment and organizational capital investment. Organizational capital investment is measured by capitalizing selling, general, and administrative expenses that have future earnings implications. This measure is consistent with others' macro-level estimates.; I develop my hypotheses by examining three attributes of intangible investments: riskiness, liquidity, and information asymmetry. Since most intangible investments have higher levels of risk, illiquidity, and information asymmetry, their cost of equity capital should be higher. Evidence in chapter 3 supports this hypothesis for R&D investment but contradicts it for organizational capital investment. An increase of 1% in R&D investment (deflated by total assets) leads to an increase of about 10 basis points in the firm's overall cost of equity capital. In contrast, an increase of 1% in organizational capital investment (deflated by total assets) leads to a decrease of about 5 basis points in the firms' overall cost of equity capital. Both types of intangible investments, however, can generate excess stock returns for the firm in the subsequent year.; In chapter 4, I examine voluntary disclosures of information on intangibles in firms' annual reports and its effect on the incremental cost of equity capital of intangible investments. I find that the level of intangibles disclosure is relatively low and the disclosure is ineffective, compared to the findings regarding general disclosures in other studies. This could be attributed to the proprietary and non-verifiable nature of information on intangibles. In chapter 5, I examine whether two common investment strategies may help reduce the cost of equity capital for intangible investments. I find supportive evidence for organizational capital investment when firms complement IT with other organizational practices. Increasing the complementarity between human capital and other assets results in an increase in incremental cost of equity capital for organizational capital but not for R&D. Forming strategic alliance has no significant effect for both types of investments. In the end of the dissertation, I discuss the limitations and point out some future research opportunities.