This study seeks to explore the market response to firms’ capitalization of intangible assets in terms of market capitalization, firm systematic risk and the cost of equity capital. The decision to expense or capitalize investments in intangibles is at the heart of this research. The effects of information asymmetry are also taken into consideration as it is hypothesized to influence the level of uncertainty in the information environment, which effects the firm’s share volatility. The relative explanatory influence of information asymmetry, as measured by analyst coverage and analyst dispersion, on other factors is explored within the research framework. The results suggest that the capitalization of investments in intangibles as balance sheet items can lower the systematic risk of the firm, and indirectly influence the cost of equity capital. However, the direct influence of the capitalization of intangibles on the market valuation, as measured by growth in market capitalization, cannot be shown. The role of information asymmetry, as measured by analyst coverage, is clearly shown to negatively influence firm systematic risk (beta). Analyst coverage is also positively associated with market capitalization growth, suggesting that high growth firms operate under relatively higher levels of information asymmetry, thereby requiring greater analyst coverage to alleviate some of this uncertainty. From the results of this study, it is proposed that voluntary disclosure of financial information, especially the capitalization of expenses as intangibles, can lead to greater firm value through a reduction in the firm’s systematic risk, share volatility and cost of equity capital.

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