Do financial analysts get intangibles?

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Abstract
It is widely agreed that corporate financial reports provide deficient information about intangible assets. However, investors are exposed to substantial information beyond financial reports, such as managers' direct communications to capital markets and analysts' reports. We ask: To what extent do these non-financial report sources compensate for the intangibles-related deficiencies of financial statements? To address this question we assume that analysts' forecasts of earnings reflect, among other things, the beyond-financial-report information we seek, and we use simultaneous equations to estimate the incremental information contribution of earnings forecasts over the information contained in financial reports, thereby isolating value-relevant information not available in financial reports. We focus particularly on intangibles-related information, by comparing analysts' contribution for firms with and without R&D. We find that, to some extent, analysts do compensate for the intangibles-related information deficiencies of financial reports, but definitely not for all the deficiencies. Accordingly, we identify the ‘weakest links’–industries in which analysts do not get intangibles.