Goodwill Capital

The concept of goodwill or brand capital is commonly employed by analysts in business and marketing to measure the asset value of a company name or a brand name, and consequently among accountants and business analysts, but is seldom used by economists. The purpose of this article is to begin to develop the concept of goodwill capital by presenting an analysis of what it is and some estimates of its likely magnitudes. We define goodwill capital, like the capital arising from R&D and advertising, as a form of intangible asset, albeit one which cannot be readily related to past investments in R&D, advertising, and capital equipment. We compute estimates of goodwill capital by deducting measures of these other three forms of capital from a firm's market value. For many companies, goodwill capital turns out to be the largest of its four capital stocks. Roughly half of our estimates of goodwill capital turn out to be negative.