DO INTANGIBLE ASSETS AFFECT PROFITS? EVIDENCE FROM PHILIPPINE PUBLICLY TRADED CORPORATIONS

Abstract

ABSTRACT In today's knowledge-based economy, business entities have appropriately recognized intangible assets in their financial statements. The future economic benefits that intangible assets are expected to provide serve as the basis of such recognition. As more empirical data on the economic benefits from intangible assets become crucial, this study provides concrete evidence that intangible assets have a positive 20.71% return on net profit. Such a finding is based on the panel regression applied to the financial statements of all the 140 Philippine publicly traded corporations with investment in intangibles from the years 2010 to 2013. That result has surfaced in four of the five sectors studied: the property sector; holding companies; the services sector; and industrial, mining, and oil sector. Intangibles are not significant in explaining the net profit of firms in the financial sector. When the intangible assets were disaggregated, the study showed that both goodwill and other intangible assets have a significant effect on net profit as shown in the coefficient of 1.22766 and 0.842331, respectively. The study also reveals that the effects of intangible assets on profit are significantly different across sectors. Thus, it is difficult to hold a general assumption on the effects of intangibles on a sectoral basis. The results provide enough reasons for the business firms to consider intangibles as strategic assets and fundamental value drivers. Therefore, companies should enhance the impact of such intangible assets on future firm performance. Correspondingly, the government has to provide an enabling environment that would help the businesses maximize the value of and protect their assets, while standard-setting bodies need to persist in coming up with criteria and guidelines that are attuned to the needs of current times and practice. Keywords Intangible Assets; Goodwill; Net Profit; Publicly Traded Corporations