Intangible Research Information
Source: Dimensional, using CRSP and Compustat data. The eligible universe includes US firms of all market capitalization, excluding REITs, tracking stocks, and investment companies. Value and profitability sorts as well as regressions also exclude utilities. Sector-agnostic sorts rank firms across the market, while sector-neutral sorts rank firms within each broad sector category. Sorts are rebalanced semiannually and based on market capitalization. Market includes all eligible firms at the market cap weight.
Following Peters and Taylor (2017), internally developed intangible capital for each firm at a point in time is estimated by accumulating the historical spending on research and development (R&D) and a fraction of selling, general, and administrative (SG&A) expenses excluding R&D, while amortizing it at constant rates.
Value is measured with price-to-book ratios. Profits are measured as operating income before depreciation and amortization minus interest expense. Profitability is measured as profits scaled by book equity.
Book equity is adjusted for internally developed intangibles or its components by adding relevant components of estimated internally developed intangibles to unadjusted book equity. Book equity is adjusted for externally acquired intangibles by subtracting externally acquired intangibles from unadjusted book equity. Adjusted price-to-book is market capitalization scaled by adjusted book equity.
Profits are adjusted for internally developed intangibles by adding R&D and 30% of SG&A to unadjusted profits. Profits are adjusted for knowledge capital by adding R&D to unadjusted profits. Profits are adjusted for organizational capital by adding 30% of SG&A to unadjusted profits. Profitability adjusted for internally developed intangibles is adjusted profits scaled by adjusted book equity. Profitability adjusted for externally acquired intangibles is unadjusted profits scaled by adjusted book equity.
Past performance, including hypothetical performance, is no guarantee of future results. Actual investment returns may be lower.
Filters were applied to data retroactively and with the benefit of hindsight. Groups of stocks and their returns are hypothetical, are not representative of indices, actual investments or actual strategies managed by Dimensional, and do not reflect costs and fees associated with an actual investment.