The impact of intangible assets and expenditures on holding period returns in the pharmaceutical industry

Abstract

The pharmaceutical industry expends billions of dollars yearly on intangibles, all in the pursuit of greater profits. Because of this, investors are naturally interested in whether intangible assets and expenditures truly create shareholder value. In this paper four intangibles, namely advertising, research and development (R & D), goodwill and other intangibles, are investigated to establish their effects on market-adjusted holding period returns (HPR), a measure of how much excess return an investor would have achieved over the market return during some specified time-frame. Results seem to indicate that of these variables, advertising does in fact seem to have a significant and positive impact on HPR. Concerns about the limitations of the study and suggestions for future research are also discussed.