The linkage between management practices, intangibles performance and stock returns

Publication Date01 Mar 2002
AuthorJason Hurwitz,Stephen Lines,Bill Montgomery,Jeffrey Schmidt
SubjectAccounting & finance,HR & organizational behaviour,Information & knowledge management
performance and
Journal of Intellectual Capital,
Vol. 3 No. 1, 2002, pp. 51-61.
#MCB UP Limited, 1469-1930
DOI 10.1108/14691930210412845
The linkage between
management practices,
intangibles performance and
stock returns
Jason Hurwitz, Stephen Lines, Bill Montgomery and
Jeffrey Schmidt
Towers Perrin, New York, USA
Keywords Intangible assets, Performance, Stock, Human resource management, Reward,
Organizational development
Abstract Intangible assets have grown in size and importance to individual firms and to the
economy as a whole. Many have examined and written about ways to value the intangible assets
of firms and the overall economy. Professor Baruch Lev of New York University has developed an
approach to measure intangibles performance for any company, or division of a company, that
uses GAAP financial reporting and that has publicly traded equity. Professor Lev has also
established how intangibles performance is linked to stock returns. The collaborative research of
the co-authors has extended this linkage by identifying certain management practices as drivers of
intangibles performance. The culmination of this work is a breakthrough ± for the first time,
specific management practices can be linked to stock returns.
The importance of intangibles
The last decade has seen a tremendous growth in knowledge workers and
intangible assets. The growth of knowledge workers in the USA and selected
European countries has been well documented (see Figure 1).
The growing dissociation of stock market value from book value strongly
indicates the importance of intangible assets (see Figure 2). Nevertheless, while
this discrepancy points to the scale of intangible assets, it is not a highly
useable measure because, among other reasons, it is dependent on the market.
The valuation of intangibles
The lack of a generally accepted methodology for valuing intangible assets has
led to numerous efforts, most of which build the valuation from the ground up.
Some valuations have focused on one or two classes of intangibles for a limited
number of firms. For example, Edvinsson (2001) calculated human and
structural capital for 43 Swedish firms. Interbrand and other firms have
calculated brand capital for brand-intensive firms. Brynjolfsson and Yang
(2001) calculated the intangibles associated with technology investments in
over 400 US firms. While these and other approaches all conclusively
demonstrate that intangible assets exist at the firm level, until now, no one has
The current issue and full text archive of this journal is available at
The authors are grateful to Baruch Lev and Feng Gu for their continued guidance and research

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