Another Look at Market Responses to Tangible and Intangible Information

As Gerakos and Linnainmaa (2016) point out, the Daniel and Titman (2006) decomposition of returns into tangible and intangible components can potentially be ambiguous. In particular DT’s book-return, the adjusted growth rate in book value per-share which DT use as a tangible measure of long-term performance, can be affected by a firm’s issuance and repurchase choices as well as by its profitability. This paper clarifies the relation between total book equity growth, our book-return measure, and our composite share issuance variable, and shows that our earlier conclusions are robust. We also provide out-ofsample tests.