Intangibles and Stock Market

Portfolio construction on the base of intangibles

Investment attractiveness of a company lies in the influence of tangible and intangible internal factors, as well as external factors. Although the creation of a portfolio using intellectual capital has been broadly discussed in the literature there is no commonly used method. It prevents investors from categorizing companies as potentially profitable on the basis of the analysis of intangibles. Throughout this research line we come up with a distinctive tool not only to reach the purpose mentioned above but also to create a portfolio of companies worth investing in by means of two crucial attributes for picking shares: intellectual capital and the capitalization of intangibles-based growth potential in market indicators. The first is examined in many papers while the second is usually ignored but seems to be very important since a company with a high IC value but low market capitalization is undervalued by the stock market and therefore attractive for investors. The research uses the database for intangibles of European companies.

The future development of this topic can be:

·        A deeper analysis of intangibles and their interactions that can lead to synergetic effects that should be taken into account when making investment decisions.

·        An implementation of  a  regression analysis technique to choose only those indicators that significantly influence a company’s value.

The findings can be useful both for practitioners and researchers. The proposed tool allows market investors to categorize companies as potentially profitable on the basis of publicly available information about intellectual capital, in other words, it represents a kind of simple screening. Company management can apply the tool to diagnose their company’s position in the stock markets and also to get some recommendation on intellectual capital disclosure. The results also can be used to develop empirical research on the market recognition of intellectual capital, to test and explain market inefficiency and develop trading strategies.