Measuring Intangible Capital with Uncertainty

• Main Authors: AN, Sungbae, LI, Nan
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2014
• Subjects: Intangible Capital; Particle Filter; Second-Order Perturbation; Finance
• Online Access: https://ink.library.smu.edu.sg/soe_research/1701
• Institution: Singapore Management University

Intangible capital has arguably become an important component of corporate value. However, it is still an open question whether uncertainty associated with investment in intangible capital is higher or lower than physical capital. We estimate the value of intangible capital in a dynamic stochastic general equilibrium model that features capital adjustment costs, investment-specific technological progress and recursive utility. We use the perturbation method up to second order to solve the model and perform Bayesian estimation using particle filter. The unobserved times series of intangible capital is estimated through particle smoother. Data from US economy in the postwar period imply that corporations indeed have formed large amounts of intangible capital as Hall (2001) found. The implied expected return on investment in intangible capital is lower than that of physical capital, which implies that intangible-capital intensive firms have a lower expected return.