Impact of Value of Intangible Assets on Stock Returns for Companies Listed at the Nairobi Securities Exchange

Abstract

Investments and manipulation of intangible assets have become the main source of economic value and wealth creation for many companies. One of the most important factor evaluated by investors prior to making an investment decision is stock returns by individual companies. This study aimed at determining the impact of value of intangible assets on stock returns for companies listed at the Nairobi Securities Exchange (NSE). Secondary data for all companies listed in NSE, for stock returns, value of intangible assets, company size and debt ratio from 2007 to 2016 were analyzed through SPSS and Excel to achieve the study objectives. Preliminary analysis showed that investments in intangible assets have low negative impact on return of stocks of 0.0169 meaning that, as value of intangible assets increases by one unit, the stock return will decrease by 0.0169 other factors held constant. However, company size shows a positive relationship with stock returns, while debt ratio reflecting a negative relationship with stock returns. Factors studied could only explain 37.78% of the systematic variation, an indication of existence of other factors that impact on stock returns. Although the study reveals that increase in intangible assets investment reduces stock returns, the value of intangible assets remains an important determinant of stock returns as proved by continual increase in intangible assets investments. Lack of recognition, disclosure and recording of all intangible assets in financial statements of these companies leads to undervaluation of intangible assets and this may explain the negative impact on stock returns.