Valuation of Intangible Assets in Corporate Finance

The valuation of intangible assets has become central to corporate finance as firms increasingly derive competitive advantage from non-physical resources such as brands, patents and proprietary technology. Unlike tangible assets, intangibles often lack observable market prices and have uncertain lifespans, creating challenges for balance-sheet recognition, measurement and disclosure. Practitioners and standard setters have responded by developing models that blend discounted cash-flow techniques, option‐pricing approaches and market comparables to estimate fair values. International Financial Reporting Standards permit the capitalisation of certain development costs but frequently require expensing of other intangible investments, accentuating the tension between decision-usefulness and conservatism in financial reporting. Empirical research reveals that the market value of firms often substantially exceeds the book value of recorded assets, a gap largely attributable to unrecognised intangibles. Consequently, improved valuation and disclosure practices enhance transparency, facilitate more efficient capital allocation and inform strategic investment decisions in an innovation-driven economy.

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Valuation of Intangible Assets in Corporate Finance publication trend

The graph below shows the total number of articles in valuation of intangible assets in corporate finance across all publications each year (not limited to Nature Index journals).

Technical terms

Intangible asset: A non-physical resource controlled by a firm that is expected to generate future economic benefits, such as patents, trademarks and goodwill.

Capitalisation: The accounting treatment that recognises an expenditure as an asset on the balance sheet rather than as an immediate expense in the income statement.

Value relevance: The extent to which a financial metric or disclosure influences equity prices or investors’ assessments of firm value.

Goodwill: The excess of the purchase price over the fair value of identifiable net assets acquired in a business combination, often reflecting expected synergies and intangible benefits.

Discount rate: The rate used to convert expected future cash flows into present value, reflecting time value of money, risk and opportunity cost.

References

1. The Impact of Intangible Assets on the Market Value of Companies: Cross-Sector Evidence. Mathematics (2022).
2. Accounting for intangibles: a critical review. Journal of Accounting Literature (2024).
3. The Disclosure of Recognised and Unrecognised Intangibles: Evidence from New Zealand. Australian Accounting Review (2024).
4. Exploring investor views on accounting for R&D costs under IAS 38. Journal of Accounting and Public Policy (2022).