Can a modern value definition save a struggling investment strategy? A study on the performance of the F-Score when adjusting book-to-market equity for intangibles

Abstract: Studies have found that the immediate expensing of intangible investments has understated the book-to-market metric, which has caused a substantial misclassification of value and glamor stocks in the new economy. This has coincided with a deteriorating performance of Piotroski's F-score, which aims to identify winning stocks among the value group by considering financial signals relevant to these stocks. We evaluate whether the artificial capitalization of intangible investments to the book-to-market metric would improve the performance of Piotroski's F-score through a less biased capture of value stocks, and if the resulting strategy manages to beat the S&P 500 index in the U.S. from 2000 to 2022. Our results show that adjusting the value screen can significantly increase the returns of a portfolio that invests in expected winners and that such a portfolio can outperform the market index. We also find evidence that the F-score is better able to separate winning from losing stocks after adjustments and that investing in identified winners is superior to investing in the underlying, complete book-to-market group.