Do stock prices reflect the value of intangible investments in customer assets?

Over the past few decades, the U.S. economy has seen a marked shift from a manufacturing-based economy to a service-based economy. An increasing number of firms today invest in intangible assets such as research and development, brand, and customer loyalty (attraction and retention), rather than real assets such as property, plant, and equipment. This investment shift is not reflected in corporate balance sheets.^ The two largest forms of corporate spending on intangible capital are research and development (R&D) spending and customer acquisition and service (A&S) spending. The finance literature has considered the effect of R&D on firm value, but has largely ignored the effects of A&S. Many high-growth companies track customer value through customer metrics such as per-customer acquisition and service expenses. Wall Street analysts also pay close attention to these numbers. Our essays address this space in the finance literature, by studying the explicit and implicit impact of firms\u27 intangible investments in customer assets. In the first essay, we establish that advertising, marketing and customer service expense are important value drivers for firms. In the second essay, we test for the value relevance of customer metrics relative to traditional accounting measures. In the third essay, we develop a theoretical model to value firms using customer metrics.