Does the Stock Market React Differently to Intangible Asset Investments than to Tangible Asset Investments?

Abstract

Using a large sample, we show that customer acquisition and customer service spending create intangible customer assets, much as research and development (R&D) spending creates intangible technology assets. We find that stock prices react positively to significant investments in these activities, similar to the positive reaction earlier studies find for investments in R&D. Conversely, we show that investments in physical assets produce negative stock price reactions. These results suggest that policies to encourage investment in intangible, rather than in physical, assets may be more valuable, at least in terms of stock market value.