Edinburgh Napier University

  This study explores the valuation frameworks that financial analysts use to estimate the value of the firms based on their unreported intangible assets. We expect that the presence of significant volume of unreported intangible assets increases the idiosyncratic nature of a firm’s enterprise ontology and the likelihood of implementing a prospecting strategy. As a result, the revenue generating process and cost behaviour are more complicated to predict and, in the case of firms with high intensity of unreported intangible assets, analysts will face increased difficultness to identify comparable firms and they will rely on more sophisticated valuation methods that incorporate intense ad hoc firm specific analytical forecasting procedures. Using a sample of UK-listed firms for the fiscal years 2019 and 2020, we provide evidence that, in the case of firms with high intensity of unreported intangible assets, financial analysts use extensively the multi-period Discounted Cash Flow (DCF) framework, while in the case of firms with low intensity of unreported intangible assets, financial analysts seem to prefer hybrid models, like Sum-of-the-Parts, alongside with the DCF model. Multivariate analysis (logit regression analysis) verifies our hypothesis where in the case of firms with substantial unrecorded intangible assets, analysts are more likely to employ more sophisticated valuation methodologies. Additional analysis indicates that analysts tend to be less optimistic in firms with higher unrecorded intangible assets.