Abstract
Brown and Kimbrough (Review of Accounting Studies, 2011, this issue) examine the effect of intangible assets on the “uniqueness” of a firm’s earnings. The paper represents an important link between the strategy literature on firm organization and the accounting literature on the drivers of firm performance. This discussion reviews the relevant strategy literature and its link to the accounting literature, discusses various aspects of Brown and Kimbrough, and explores implications of Brown and Kimbrough’s findings.
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Notes
Brown and Kimbrough, footnote 3.
The H-Index, suggested by Jorge E. Hirsch, is a measure of the productivity and scholarly impact of a researcher. Wikipedia describes the index using these words: “…a scholar with an index of h has published h papers each of which has been cited by others at least h times”. (http://en.wikipedia.org/wiki/Hirsch_number).
Michael Porter of Harvard is a prominent scholar in the IO strategy literature and, as seen in Sect. 2.3, has provided evidence on the resource-based view of the firm. His citation count (H-index) is 133,000 (134) providing further evidence on the pervasive role of these issues in the strategy literature.
To gain further insight into what drives synchronicity, Brown and Kimbrough carry out similar regressions with stock-return non-synchronicity as the dependent variable. Stock-return non-synchronicity is also positively related to the use of intangible assets. .
Brown and Kimbrough, page 2.
Footnote 9 of Brown and Kimbrough discusses expropriation and reports that competitors often know a firm’s R&D intelligence within a year; however, as stated above, the key question is when the earnings consequences of R&D are realized for the firm and its competitors.
The mean intangibles ratio is 12.1%; a 10% increase in 1.121 equals 1.2331, or an intangibles ratio of 23.3%.
UNEXPLAINED = (1−R2) and has a mean of 76% implying an R2 of 24%. Increasing ((1–0.24/0.24) by 3.5% implies an R2 of 23.4%.
I will discuss this issue further in Sec. 4.3.
NONCOMMON is calculated following the procedures in Sect. 3.1 of Brown and Kimbrough.
Note that I make no adjustment for industry and Brown and Kimbrough’s results indicate the effect of RD on earnings synchronicity depends on industry characteristics. Further, NONCOMMON is based on return-on-assets, not ROE; however, substituting return-on-assets for ROE in the analysis results in very similar inferences.
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Acknowledgments
I thank Jay Barney, Peter Easton, Shad Morris, Stephen Ryan (the editor), and Todd Zenger for helpful comments on this discussion, and DuRi Park for excellent research assistance.
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Roulstone, D.T. Discussion of “intangible investment and the importance of firm-specific factors in the determination of earnings”. Rev Account Stud 16, 574–586 (2011). https://doi.org/10.1007/s11142-011-9149-4
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DOI: https://doi.org/10.1007/s11142-011-9149-4