The stock market is “increasingly populated  by intangible companies,” according to a recent article in Bloomberg that discusses the trend’s implications.

“Some 40% of public stocks quoted in the U.S. have negative tangible book value, meaning that their tangible assets aren’t worth enough to repay all their debt,” the article says, comparing the situation to twenty years ago when this was true for only 15% of companies (data from INTL FCStone Inc.).

While this might sound like a scary development, the article notes that a fund composed of shares with negative tangible book value “would have beaten the main U.S. stock market, represented by the Russell 3000 Index, by 24% over the last 20 years.”

What’s causing the trend? INTL FCStone’s Vincent Dulardo offers the following explanations:

• “A triumph of creative accounting:” Dulardo attributes the situation to “rapacious financial engineers and private equity investors who have taken over companies, sold their physical assets and leveraged them to the hilt. Rather than invest in new assets that make something, any new cash flows go toward buying up shares and levering up still further.”
• Material assets “don’t matter as much as they used to,” according to Dulardo, who says that “in the era of the internet, companies need far fewer physical assets to make a profit. And with rates spectacularly low for a decade, the economic “moat” once provided by factories, retail branch networks or other big physical investments is no longer impregnable.”

One result, Dulardo notes, is the increase in the number of “zombie” companies, those that are no longer competitive but continue to plod along bolstered by cheap financing—a troubling scenario which undermines capitalism’s process of “creative destruction” and may explain the “low productivity that has bedeviled the West since the financial crisis.”

The article concludes that rising rates would present zombie companies with an “existential crisis, while we would see how well the new immaterial giants could cope once money had a higher price,” adding that “the time will come when we will all learn a lot more about the true value of intangibles.”