Owiredu et al.

(2014) tested the effects of the intensity of intangible assets of ten firms from
each of the four industries (pharmaceutical, food, information & technology and metal) on the
volatility of their stock price for a period of ten years. In this study OLS regression was used to
test the relationship of the variables where, price volatility is assumed constant over a ten year
period then changes in price for a certain year is calculated to attain price volatility and the
intensity of intangible assets are measured from the annual average of booked value of
intangible assets on firms balance sheet. Results showed that there is a negative association
between the two variables however; the pharmaceutical industry exhibited a positive effect.
According to the researchers, this may be due to the fact that stock prices are driven by
speculations and expectations of future growth and it can be argued that research and
development and advertising costs will be eventually generate intangible assets which are not
accounted.
The product of stock price and the number of outstanding shares of a firm is the firms market
value (Shah, 2008). In Nords (2011) study, research & development in a pharmaceutical
industry was evaluated to see its connection to profitability where the researcher analyzed if
investing more funds in research & development will give firms a higher market value than those
who spend less. The dependent variable is the market value, the independent variable is
research and development expenditures and the control variables are firm growth, free cash
flow, market share and risk which are tested using OLS regression and White test. Results
showed that research and development has a positive and significant effect on the firms market
value.
Another study about the relationship of research and development and firm market value
showed a positive result where firms in Tehran Stock Exchange during 2003 to 2008 was used
(Sahar et al., 2014). The researcher used Bhandari (2006) model, Pearsons correlation
coefficient and two regression models on profitability and stock market value because the study
aims to see the relationship of research and development to profitability and stock market value.
The study conducted by Miyagawa et al. (2014) is guided by the study of Corrado et al. (2009)
where intangible assets are measured in a broader concept. In this particular study, the
researcher used software, research and development, brand equity, firm specific human capital
and organizational change as components of intangible asset of the listed firms in Japan to test
its relationship to market value using Tobins Q, OLS regression and quantile regression. The
findings where higher intangible assets increase firms market value are in accordance with the
results conducted by Bond and Cummins (2000).
150 largest firms by market capitalization in Australian Stock Exchange from 1979 to 1997 were
used to examine the effect of identifiable intangible asset disclosures to financial reports in the
study by Ritter and Wells (2007). It is suggested by the definition of assets in the conceptual
framework and the recoverable amount test which propose that asset values are a function of
future income hence suggesting that intangible assets can also offer information on future
income other than that attributable to tangible assets. This will be established by proving that
identifiable intangible asset disclosures are positively associated with stock prices and future
earnings period. Results are evident that there is a positive association between stock price and
voluntarily recognized and disclosed identifiable asset.

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Nord, Lawrence (2011). R&D Investment Link to Profitability: A Pharmaceutical Industry
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Sahar, M. and Yalali, M. (2014). Effect of R&D Spending on Firm Profitability and Stock Market
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Miyagawa, T., Takizawa, M. and Edamura, K. (2014). Does the Stock Market Evaluate
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Shah, S., Stark, A. and Akbar, S. (2008). Firm Size, Sector Market Valuation of R&D
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