Abstract
Purpose – This paper aims to investigate how and to what extent intangible assets influence the evaluations of financial analysts covering companies listed on the Brazilian Stock Exchange ( Brazil, Bolsa, Balcao – B3) from 2010 to 2016. Design/methodology/approach – The analysis was divided into two stages. In the first stage, we examined intangible asset taxonomies (i.e., structural, relational, and human capital) through content analysis by counting repeated key terms related to each category of intangible assets cited in the financial analysts’ reports. In the second stage, we analyzed the influence of intangible asset proxy variables on coverage, forecasting errors, and accuracy of earnings per share forecasts by financial analysts. Findings – In the first stage, the results suggested that analysts cited more terms related to the structural capital category, particularly the terms “strategy” and “mission.” In the second stage, the results pointed to the absence of statistically significant relationships between the studied variables. Therefore, it is possible to infer that although financial analysts covering firms in the Brazilian Stock Exchange cite terms related to intangible assets in their reports – which, in turn, points to the relevance of these assets during the company valuation process – the difficulty of conducting evaluations grounded on reliable bases, the scarcity of quality information about their development, and incentive problems may challenge or even prevent quantitative assessments targeted at capital market participants. Originality/value – By adopting an innovative methodological approach in the Brazilian context, this study highlights the fact that intangible assets influence financial analysts to a certain extent and they, in turn, manage to incorporate them into their analyses, although the statistical relationships have not been explicitly demonstrated.
Highlights
Intangible assets are the main drivers of corporate value
Our results suggest that financial analysts working in the Brazilian stock market make references to intangible assets in their reports – which points to the relevance of these assets – the difficulty of evaluating them, the scarcity of quality information about the development of such assets, and incentive problems discourage or even prevent their evaluations in quantitative terms for the participants of the capital market
A higher average incidence of structural capital was found in the financial reports of analysts who follow companies listed on the United States stock exchange, according to the results found by Maaloul et al (2016)
Summary
Despite the relevance of intangibles, there are accounting and financial limitations to evaluating them (Cavalcanti, Amaral, Correia, & Louzada, 2017). On the one hand, accounting standards and legal procedures do not allow intangibles to be fully reported in financial statements; they are recorded as expenses. Financial valuation methodologies need to be adjusted, as it is difficult to format expectations regarding the inputs needed to prepare the cash flows generated by such assets. We agree with Bessieux-Ollivier, Schatt, Walliser, and Zéghal (2014) that analysts are sophisticated users of accounting, financial, market, and economic information, who have the potential to supplement intangible asset information by incorporating expectations of future corporate performance in their analyses and disclosing them afterwards to capital market participants through their reports
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