Empirical Research on Capitalizing Intangible Assets Is Logically Incoherent

Abstract

This essay critiques empirical research that purports to support the accounting policy of capitalization of intangible assets. The critique is two-fold. First, the conclusions from the research are inconsistent with rational decision theory about how investors make inferences from accounting information. Second, the way the empirical analysis is constructed to reach those conclusions fails to introduce the information from which a rational investor assesses the payoff to intangible assets.