Intangible Asset Productivity and Valuation Errors
Asian Tax Journal Vol. 24 No. 5 (2023), pp. 95-117
Abstract
This study was a study on intangible asset productivity and valuation errors and verified whether valuation errors decrease as intangible asset productivity increases. Intangible asset productivity means that intangible assets operate efficiently and contribute significantly to the profits of the company, and was measured according to the study of Clausen and Hirth (2016). The valuation error used as a dependent variable was calculated according to the study of Rhodes－Kropf et al. (2005) as the difference between the market value and intrinsic value of the company. The analysis targets used in this study are companies listed on KOSPI market from 2011 to 2022, and the final sample is 6,915 firm－years. As a result of the verification, it was found that valuation errors decreased as intangible asset productivity increased, and this result was larger in the overvaluation section. In other words, as intangible asset productivity increases, the information risk decreases as the company becomes easier to interpret, and in particular, the effect of reducing the risk of overvaluation becomes more noticeable. Considering the above results, this study is expected to have the following contributions. First, it was directly demonstrated that as intangible asset productivity increases, predictions for the company become more accurate and valuation errors decrease. In other words, the information risk cost according to the productivity of intangible assets was directly shown through the value of valuation error. Second, the higher the productivity of intangible assets, the greater the effect of reducing the risk of overvaluation among valuation errors. This means that, conversely, the lower the productivity of intangible assets, the greater the risk of overvaluation, so investors should be cautious when investing in such companies. It suggested the need to take action. Third, it can be used by capital market regulators as a basis for establishing information disclosure policies on intangible assets held by companies in order to reduce valuation errors in the capital market.
Keywords
- Intangible asset productivity
- Valuation error
- Following analyst
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