Intangible assets and firm performance: The relative effects of recognized and unrecognized assets

The term intangible assets embraces a wide array of assets, resources and capabilities that contribute to the productive potential of firms, but which do not have physical substance. Most empirical studies simply use an aggregate measure of intangibles derived from data collated from firms’ financial statements (we refer here to recognized or written intangibles). But such a measure includes only some of the valuable intangibles that firms possess, and typically does not capture the value of many intangibles (e.g. managerial and organizational capabilities, market knowledge, trusted relationships) that are internally generated by the company. Yet it is likely that such unrecognized or non-written intangibles will have at least as important an impact on corporate performance as that of the written intangibles. We show empirically that the growth of both categories of intangible assets have significant effects on sales growth (our chosen measure of firm performance), and that the elasticity of firm performance with respect to the growth of written intangibles is significantly larger than the elasticity with respect to the growth of non-written intangibles. However, our analysis also reveals that the mean stock of non-written intangibles is three times larger than the stock of written intangibles, and that the mean growth of the non-written intangibles is three times faster than that of written intangibles.