Interesting working paper from Chiu, Jagannathan and Tseng which highlights the shortcomings of just using historic expenditures on RnD and SG&A to estimate firms’ intangible assets. The paper examines in detail the gap between estimates produced by this historic cost method, reported intangibles (such as goodwill) and market value. This gap can be ascribed to market-mispricing but the authors show that it is also related to a franchise value, whereby firms with high franchise value face fewer market threats and enjoy higher markups and economic rents. The authors’ example of Heinz ketchup highlights the point. Heinz represents over half of the US ketchup market and the customer loyalty that it enjoys enables it to charge higher prices and earn economic rents. Although putting a number on this brand loyalty is hard (dedicated brand consultants have been doing for years) we do know that the $23 billion Berkshire Hathaway and 3G Capital spent on acquiring Heinz is far in excess of a perpetual inventory method applied to Heinz SG&A.