In this paper we investigate whether selling, general and administrative (SG&A) expenditure (excluding R&D and advertising expenditure) creates a long-lived asset. GAAP requires SG&A expenditure to be expensed immediately as a period cost to recognize using up of economic benefits. We hypothesize and find that SG&A expenditure generates future economic benefits and consequently current SG&A expenditure has a positive multi-period impact on subsequent earnings. Analyzing contemporaneous stock returns, we infer that investors do not view all of SG&A expenditure as an expense in the current period, but rather seem to recognize some of the asset value implicit in SG&A by differentiating it from the remaining components of earnings. We also document that no excess returns can be earned in subsequent periods by investment strategies that are based on publicly available SG&A information, suggesting that the contemporaneous stock prices may already fully value the intangible asset created by contemporaneous SG&A expenditure. Our analysis of executive compensation indicates that the changes in bonus and equity compensation are negatively associated with the change in SG&A expenditure, but the negative association decreases when current SG&A expenditure has a relatively greater impact on future profitability. Overall, the evidence suggests that the capital market and the executive labor market recognize the asset value created by SG&A expenditure despite its expensing for financial reporting purposes
