Justin Fox discusses the increasing proportion of intangible to tangible assets in the valuation of a corporation. For instance, more intangible assets give a corporation more freedom to escape commitment, to avoid taxes, and to "funnel income to the relatively small number of talented people who are credited with creating that intangible value, thus fueling a sharp rise in income inequality." While the ratio of intangible to tangible value has been increasing over the years, there is no reason to suspect there will not be a reversion to lower level in time. ~ Ilene
The Intangible Corporation
What are corporations made of? Well, mostly not buildings and machines and property and such anymore. Most of their value comes from brands, patents, ideas and other intangibles.
James E. Malackowski, chief executive officer of Ocean Tomo, the intriguingly named merchant bank that assembled this data, predicts that the tangibles/intangibles balance will shift back a bit in the next few years as various forces (higher labor prices in China, cool new manufacturing technologies, etc.) “fuel a return to tangible domestic investments.”
A stock market correction would bring down the intangibles percentage too — Ocean Tomo calculates intangible assets simply “by subtracting the tangible book value from the market capitalization of a given company or index,” so the rise in intangibles since the 1970s is in part just a reflection of rising stock market valuations. But that’s not all it is: the cyclically adjusted price-earnings ratio on the Standard & Poor’s 500 Index has risen about 2 1/2 times since 1975, while the intangibles increase has been almost fivefold.
So the modern corporation really is a different, much less bricky-and-mortary creature than its predecessors. In a speech in London earlier this month (it will eventually show up online here), Colin Mayer, a professor at and former dean of the Said Business School at the University of Oxford, cited the above data as evidence that we are on the cusp of a new corporate age…
Keep reading The Intangible Corporation – Bloomberg View.
