Abstract

The purpose of this dissertation is to investigate the valuation of intangible assets in different financial environments. Value relevance of intangible investments has been largely recognized by indicating their close relatedness on future operating performance and valuation of firms. The financial environment of the country (market- or bank-based) is also found to be an important determinant of the economic performance of the firm. This thesis combines these two important issues by examining how a country’s financial system affect the firm’s investments and valuation of intangible assets.

The study consists of four essays and an introductory section. Essay I investigates the firm’s investments in human capital in different legal- and financial environments. The results of this study indicate that human capital asset constitutes an essential part of the market value of firms in all our sample countries. The results also suggest that firms make investments in human capital to increase their innovation capabilities and to improve their future benefits.

Essay II investigates the firm’s investments in R&D capital in different financial systems. The common result concerning both financial system is that the estimated R&D capital constitutes a great part of the firm’s unrecorded goodwill. The main finding of the study is that the effects of the firm’s past profitability and growth on its estimated R&D capital are stronger in bank-based than market-based financial systems. This result emphasizes the role of bank-based financing over market-based financing in the efficiency of resource allocation to R&D investments.

Essay III investigates the stock market’s response to the firm’s R&D investments in different financial systems by taking account of lead-lag structure between the firm’s R&D investments and its market value. The main result of the study is that the stock markets’ response to current R&D investments varies between different financial systems with regards to the point in time against which the stock market response is examined. This study suggests that information disclosure policies, level of stock-market expectations and attitude towards risk are the most important potential factors that explain the valuation differences of R&D between market- and bank-based financial systems.

Essay IV investigates the effect’s of a country’s financial system on current R&D investments and the future profitability of the firm. The main results of this study can be summarized as follows: the firm’s current R&D investments are more strongly associated with the level of future firm profitability in bank-based than market-based financial system whereas current R&D investments are more strongly associated with the uncertainty of future firm profitability in market-based than bank-based financial system. The findings of this study suggest that differences in the valuation of R&D between market-based and bank-based financial systems mainly depends on the information asymmetry between the firm and its investors.