Measuring and valuing intangible capital in the wireless communications industry

Together, licenses and advertising explain over 60% of the variation in Tobin’s q, and licenses are the much more powerful predictor of the two.

Abstract

We investigate the measurement and valuation of intangible capital in the wireless telecommunications industry. Four specific sources of intangible capital are investigated: advertising, research and development (R&D), radio spectrum licenses, and measures of installed customer base. All four sources of intangible capital explain a statistically significant portion of the variation in Tobin's q, but the variation explained by R&D is subsumed by that explained by licenses. Together, licenses and advertising explain over 60% of the variation in q, and licenses are the much more powerful predictor of the two. The industry average q exceeds ten, and it appears that the failure of financial accounting statements to reasonably value licenses plays a substantial role in causing these extraordinarily high q ratios.