Intangible investment as an independent asset pricing factor

Determine whether intangible investment, measured as research and development (R&D) expenditures plus the investment component of selling, general and administrative (SG&A) expenses divided by average total assets (the INTAN measure), can serve as an independent factor for predicting stock returns that is distinct from and not subsumed by the Fama–French value (HML) and profitability (RMW) factors.

Background

The paper motivates its study by noting the rapid rise of intangible investment (e.g., R&D and parts of SG&A) and the expensing treatment under GAAP, which affects measured profitability and market-to-book (MTB) ratios. Prior work shows that adjusting value and profitability metrics for intangibles improves their explanatory power for returns, but it does not establish whether intangible investment itself can be used directly as a pricing factor.

Within the Fama–French framework, the authors construct an intangible intensity factor (INTANFT) and examine its relationship with traditional factors to assess whether intangible investment stands on its own as a predictor of stock returns over different periods.