Evidence of franchise value in the banking industry.

This dissertation examines the value-relevance and reliability of intangible assets common to the banking industry. The majority of these intangible assets are neither recognized nor disclosed and few banks voluntarily provide information about these assets. Investors therefore do not have a direct source for information about intangible asset values that could help them understand important aspects of bank operations. I first estimate four customer-based intangible assets: the core deposit intangible, mortgage servicing rights, credit card intangible, and trust operations intangible, using publicly available information. I then examine the value-relevance and reliability of the estimates, the effect of the unrecorded intangible assets on the incorporation of abnormal earnings in an accounting valuation model, and a comparison of investors' valuation of the unrecorded and recorded amounts. I find that each intangible asset can be empirically estimated from publicly available data and that the estimates are value-relevant and reliable, but that measurement error reduces the level of reliability. The intangible assets appear to be a primary source of bank abnormal earnings. Evidence also suggests that disclosures for credit card and other identifiable intangible assets can be improved. I separately consider a fifth intangible asset, deposit insurance intangible. Results indicate that investors are not valuing the deposit insurance intangible as an asset, instead, they incorporate the estimate as a liability, possibly as a measure of increased risk.