Question

Define intangible assets. Then explain the importance of such assets for the economy. Some authors have argued that investors systematically mis-price the shares of intangibles-intensive enterprises and that, as a result, there is underinvestment in intangibles in the economy. Discuss their evidence and argument.

Answer 1

An intangible asset is an asset which is lacking the physical substance and which is not touchable .These assets could be Goodwill, patents, and copyrights and they are very hard to evaluate because of their lack of physical presence.

Importance of such assets for the economy is very high because the economy is based upon various types of intangible assets which are not physical in nature such as copyrights and patents along with goodwill and other intellectual property rights which are of very high importance and which are of very high valuations also, so this will be adding a lot to the overall intangible production of an economy.

Investors will be systematically mispricing the shares of intangible intensive enterprises because these enterprises which have a lot of intangible assets & they are not easy to evaluate as there will be a lot of assumptions which are based upon and they are not properly adjusted with the market rate as they are intangible in nature so there is lack of physical existence and lack of physical tradibility of the intangible assets hence it can be said that even though a large number of investors will be under pricing these intangibles, as it can be seen in case of of listing of equity share or valuation of mergers and acquisitions in case of goodwill and listing of patent and purchasing of a copyright.