Intangible Assets : Managing Value Creation Strategy in Knowledge Economy

Intangibles are inadequately accounted for in the traditional financial reporting as current accounting system was designed for an era when tangible assets were dominant in the economy. They don’t show up on a balance sheet or an income statement - yet, they are the manageable and usually quantifiable drivers of enterprise value creation. There is no doubt that what differentiates superior organizations from average ones is the way they manage and leverage their intangibles. The management of intangibles is crucial for sustainable performance and future success of businesses. In the current era of knowledge based new economy, management of intangible assets is the major source of competitive differentiation and key determinants of competitive advantages. It’s evident that many businesses in the current era operate without traditional discernible assets. Yet these companies are increasingly the main contributors of value to the economy as intangible assets drive their economic performance. Intangible businesses must be managed differently as 62% of the world’s business is now intangible. Paper explains the term intangibles and also differentiates it from tangible assets. Paper discusses various definitions of intangibles. It also explains drivers for the growth of intangibles. Paper also highlights cost associated with disclosure of intangibles. A firm can voluntarily provide useful information on its intangible assets, aiming at reduction of information asymmetry and perceived risk. Consequently, firms experience a higher market valuation. This paper emphasize the positive correlation between disclosure and corporate valuation