Capitalization of internally generated intangible assets and its impact on the predictive power of accounting information

Resumo

This research aimed to examine the extent to which the capitalization of internally generated intangible assets provides a better prediction of stock returns in the Brazilian market. Accounting for intangible assets as expenses has led to a decline in the relevance of accounting information, demanding research to test the adaptation of accounting metrics for application in risk and return models. International studies have been developed to test the effects of capitalizing these assets, but this verification has not yet been carried out in Brazil. The capitalization of internally generated intangible assets provided an accounting measure more closely related to stock returns and also made it possible to select companies with better fundamentals for value strategy. Thus, the study is relevant because it provides input for discussions on the treatment given to internally generated intangible assets. The research contributes to academia and market participants by providing an alternative measure of book value that constitutes an improvement in the informational content generated by accounting. The findings suggest that the capitalization of internally generated intangible assets improves the predictive power and informational content of accounting. The sample consisted of Brazilian companies listed on the B3 S.A. – Brasil Bolsa Balcão, from 2011 to 2022. Intangible assets reported as expenses were estimated and capitalized. The adjusted book-to-market (B/M) ratio was used in cross-sectional return regressions and in the reconstruction of the value factor in the five-factor model. The B/M adjusted for the capitalization of internally generated intangible assets showed a greater correlation with stock returns than the original indicator. The selection of value and growth stocks, using the adjusted B/M ratio, provided portfolios with higher returns in the high minus low (HML) strategy and a better measure for the five-factor model. The best results were obtained with a long position in value stocks using the adjusted HML and a short position in growth stocks using the original HML.