Value Relevance Of Intangible Assets Research Articles

Value Relevance of Intangible Assets Recognized in a Business Combination

Objective: To verify the value relevance of intangible assets recognized in a business combination of Brazilian publicly traded companies.Method: The sample of 165 companies, covering 962 observations, from 2010 to 2017, was analyzed using five panel data regressions based on Ohlson’s model (1995; 2005) to test four research hypotheses.Originality/Relevance: Value relevance studies have analyzed goodwill, but there are gaps this study seeks to fill. The study addresses the value relevance of intangibles assets recognized in a business combination for the stock market, exploring goodwill and other types of intangibles recognized in a business combination. Also, IFRS 3 was discussed in 2015, bringing the stock market’s perspective and the standard application to the center of accounting research.Results: The results showed that goodwill represents 23% to 30% of intangible assets recorded in the balance sheet, while other intangibles identified represent around 5.6%. As for value relevance, it was observed that both the recognized value of the intangible assets and, when segregated in goodwill and in identified intangible assets, were significant and positively related to the market value. Concerning the nature of intangibles recognized in business combinations, some of them were related to market value.Theoretical/Methodological contributions: The research contributes to value relevance literature on business combinations, allowing us to understand that they are relevant to the stock market and contribute to Brazilian companies’ market value.

Relevancia valorativa de los intangibles: Análisis pre-NIIF y NIIF en el mercado de capitales argentino

El objetivo de este trabajo es analizar el efecto de la adopción de las NIIF en la relevancia que el mercado de capitales argentino asigna a la información financiera sobre activos intangibles y a la información no financiera referida al capital intelectual de las empresas que cotizan en el mismo.
 El análisis se realiza aplicando modelos de precios basados en Ohlson (1995), con datos recolectados directamente de fuentes originales y correspondientes al período 2009-2015.
 Los resultados revelan que la adopción de las NIIF produjo cambios en la relevancia valorativa de los activos intangibles, pero no ha impactado en la relevancia valorativa del capital intelectual. Además, muestran que las dimensiones humana y estructural no son consideradas por los inversores, en ninguna de las dos etapas (NIIF y pre-NIIF), mientras que el capital estructural tiene un impacto negativo en los precios en ambos períodos.
 Estos hallazgos son acordes a los aportados por los estudios previos y, en particular, los referidos al capital intelectual, son similares a los obtenidos para países de bajo desarrollo, donde no se han logrado evidencias que apoyen su relevancia valorativa. Contribuyen, de este modo, a acrecentar la evidencia existente en torno al papel de los intangibles en la valoración externa de las empresas y a las implicaciones que en ello ha tenido la aplicación del marco normativo del IASB, la cual es particularmente limitada para mercados poco desarrollados.

The Value of Discretion in Africa: Evidence from Acquired Intangible Assets Under IFRS 3

This paper examines the value of managerial discretion in financial reporting by exploring the value relevance of intangible assets acquired in business combinations (AIA) before and after the 2008 International Financial Reporting Standard (IFRS) 3 amendment. The 2008 IFRS 3 amendment gave managers the discretion to recognize previously unrecognized intangibles in the target firm, hence, we posit that if managerial discretion improves the quality of financial reporting, we should observe an increase in the value relevance of AIA after the amendment. Our empirical analysis is based on a dataset of 603 mergers announced between 2004 and 2016, across seven African countries. Consistent with our main hypothesis, we find that the value relevance of AIA, predominantly acquired goodwill (AGW), increased after the amendment, suggesting that managerial discretion improves the quality of financial information. Our results further show that the value of discretion is moderated by the underlying institutional quality, with the value relevance of AIA being greater in high-quality institutional contexts. Our findings are robust to alternative measures of AIA, alternative models for testing value relevance, and various controls for endogeneity. Overall, our findings have important implications for accounting standard-setters, governments, investors, and practitioners.

The influence of IFRS mandatory adoption on value relevance of intangible assets in Italy

PurposeFollowing the mandatory IFRS adoption in 2005, the Continental European accounting systems changed. This study investigates if it influenced the value relevance of intangible assets in Italy.Design/methodology/approachTo measure the value relevance of intangible assets of non-financial firms listed on Borsa Italiana from 2000 to 2015, this study isolates the impact of several classes of intangible assets on stock prices and then classifies firms according to intangible asset intensity.FindingsGoodwill, intellectual property and other rights, start-up costs or other intangible assets are significantly correlated with stock prices when Italian accounting standards were applied prior to 2005, whereas research and development expenditures are not associated with stock prices. The mandatory IFRS adoption has exerted positive effects only for goodwill and research and development expenditures, and it is negative for start-up costs. Further, when intangible-intensive firms are considered in the post-IFRS adoption period, declining value relevance exists relative to intellectual property and other rights or research and development expenditures; goodwill and other intangible assets increase in value relevance.Research limitations/implicationsThis study is subject to country-specific determinants and firm-specific characteristics. It treats accounting standards as exogenous, and the classification reflects the concentration of intangible assets in an industry. By relying on investors’ assessments of risk, it does not sufficiently explore the risk conveyed by future abnormal earnings and earnings volatility.Practical implicationsThis study offers insights for measuring and reporting intangible assets, by specifying that their value relevance depends on their level and aggregation.Originality/valueThis study investigates the value relevance of intangible assets in the post-IFRS period, in reference to intangible-intensive firms. It also divides intangible assets into several classes to specify the value relevance of goodwill.

The Value of Managerial Discretion in Africa: Evidence from Acquired Intangible Assets Under IFRS 3

The paper examines the value of managerial discretion in financial reporting by exploring the value relevance of intangible assets acquired in business combinations (AIA) before and after the 2008 International Financial Reporting Standard (IFRS) 3 amendment. The 2008 IFRS 3 amendment gave managers the discretion to recognize previously unrecognized intangibles in the target firm, hence, we posit that if managerial discretion improves the quality of financial reporting, we should observe an increase in the value relevance of AIA after the amendment. Our empirical analysis is based on a dataset of 603 mergers announced between 2004 to 2016, across 7 African countries. Consistent with our main hypothesis, we find that the value relevance of AIA, predominantly acquired goodwill (AGW), increased after the amendment, suggesting that managerial discretion improves the quality of financial information. Importantly, we highlight a caveat to this argument by showing that the value of discretion is moderated by the underlying institutional quality, with the value relevance of AIA being greater in high-quality institutional contexts. Our findings are robust to alternative measures of AIA, alternative models for testing value relevance and various controls for endogeneity. Overall, our findings have important implications for accounting standard-setters, governments, investors and practitioners.

Value Relevance of Intangible Assets Before and After FRS 138 Adoptions: Evidence From Malaysia

The economic environment has changed from the era of agriculture, industrial and now to an information era. In this information era, intangible assets dominate the environment compared to during industrial era that was mainly dominated by tangible assets. Intangible asset plays an important role in today’s economy with the shift from being an industrialised economy to a high-tech and service-oriented. In Malaysian capital market, there is an upward trend of intangible assets development. Hence, the question of whether the value relevance of intangible assets is properly reflected in financial statements arises. The objective of this study is to examine the value relevance of intangible assets in Malaysia before and after the adoption of FRS 138. This study used a sample of 113 public listed companies from four main sectors namely Industrial Product, Trading services, Consumer Product and Technology. The period under study was divided into two, that is, pre adoption period (2002-2005) and post adoption period (2008-2011) to observe if there were any improvements on the value relevance of intangible assets after the adoption of International Financial Reporting Standards (IFRS). The data was analysed to examine the value relevance of intangible assets in Malaysia before and after the adoption of FRS 138. The finding of this study suggests that intangible assets are value relevant in the pre adoption period but are not value relevant in the post adoption period. This study may contribute to the existing literature on the economic consequences of adopting IFRS and also preliminary indication of the impact of FRS 138 adoption.

Organization Capital and the Cost of Equity Financing in Medium‐Sized Manufacturing Firms

AbstractWe examine the effects of organization capital—evident in management quality practices—on firms’ implied cost of equity. We show that superior management practices decrease firms’ cost of equity capital. This novel finding, robust to a battery of sensitivity analyses and to endogeneity bias, highlights the importance of superior management practices in improving firms’ financing conditions. In sum, this study demonstrates that the quality of management practices maps onto firms’ financing conditions, stressing the value relevance of intangible assets.

Value relevance of intangible assets: An exploratory study of Algerian listed companies

Value relevance of intangible assets: An exploratory study of Algerian listed companies

The value relevance and reliability of intangible assets

Purpose – The purpose of this paper is to examine the value relevance of intangible assets, including goodwill and other types of intangibles in the pre- and post-adoption periods of International Financial Reporting Standards (IFRS). Most importantly, this paper investigates whether the value relevance of reported intangible assets is associated with their value reliability. Furthermore, this paper reports whether the adoption of IFRS improves the value relevance of intangible assets and alters the relationship between value relevance and reliability. Design/methodology/approach – Both price and return models based on Ohlosn theory (1995) are employed to test the value relevance and value reliability of intangibles. Australian-listed firms with capitalised intangibles from 2001 to 2009 are selected in this study. The sample includes 6,650 firm-year observations. Findings – The main result shows that capitalised intangible assets are value relevant in Australia, in both the pre- and post-adoption of IFRS periods. Value relevance is higher in firms with more reliable information on intangible assets. This study finds that the value relevance of intangibles has declined in the post-adoption period of IFRS. However, the positive relationship between the value relevance and the reliability of intangibles has remained unchanged in the post-adoption period. Originality/value – The paper contributes a new measurement of value reliability of accounting information about intangibles. This paper is one of few studies on the relationship between value relevance and reliability of intangible assets. The results show that value relevance is positively associated with value reliability. This suggests that, when accounting standard setters assess whether the existing IFRS of intangibles should be improved in the future, they need to think not only in terms of whether the standard can provide more relevant information of intangibles to investors but also whether the standard can make the information of intangibles more reliable.

Study on the Value Management of Forestry Intangible Assets in the Era of Knowledge Economy

In the era ofthe knowledge economy, the accounting priority has shifted from tangible assets to intangible assets. The knowledge economy-based intangible assets is gradually emerging as the main impetus for determining the forthcoming cash flow and market value. This paper takes the stocks listed in Shenzhen Securities Exchange as the study object, conducts empiricalstudy and analysis based on the sampling data, including 2008-2010 pershare intangible assets,per share returns, per share net assets after deducting intangible assets and share price,describes the disclosure of intangible assets of such listed companies as Jilin Forest Industry,Zhongfu Industrial, Yihua Timber Industry, Fenglin Group and Palm Landscape and inspects the value relevance of intangible assets. Accordingly, this paper proposes to consolidate the value management of intangible assets of the forestry enterprises and improve their core competítíveness.

Market assessment of intangibles and voluntary disclosure about innovation: the incidence of IFRS

Purpose – The purpose of this paper is to investigate the incidence of International Financial Reporting Standard (IFRS) on stock market assessment of intangibles and voluntary disclosure about innovation.Design/methodology/approach – The authors develop three regression models. The first model investigates the stock market valuation of intangible assets and disclosure about innovation. The second model desegregates earnings to assess the relevance of components related to intangibles. The third model investigates how intangible expenses and voluntary disclosure affect analysts forecast dispersion.Findings – Results show that the value relevance of intangible assets and expenses improves with the adoption of IAS 38. Overall, results indicate a decrease in the value relevance of voluntary disclosure about innovation under IFRS. More specifically, results suggest some overlap in the information content of mandated and voluntary disclosure for stock market valuation of intangible assets under IFRS. Findings ...

Firm Life Cycle and the Value Relevance of Intangible Assets: The Impact of FRS 138 Adoption

Firm Life Cycle and the Value Relevance of Intangible Assets: The Impact of FRS 138 Adoption

Does the Capitalization of Intangible Assets Increase the Predictability of Corporate Failure?

SYNOPSIS: The value relevance of intangible assets is now well documented in the literature, leading to calls for standard setters to adopt more flexible reporting rules for these assets. In this study, I evaluate the merits of intangibles capitalization from a bankruptcy and default risk perspective, which has not been previously considered in the literature. The study is conducted in a unique reporting environment, where managers have had considerable discretion to capitalize a wide range of intangibles over an extended period. Three main results are reported. First, failing firms capitalize intangible assets more aggressively than non-failed firms over the 16-year sample period, but particularly over the five-year period leading up to firm failure. Second, drawing on the accounting choice literature, I find that managers’ propensity to capitalize intangible assets has a strong statistical association with earnings management proxies, particularly among failing firms. Finally, voluntary capitalization of intangibles has strong discriminating and predictive power in a firm failure model, even after controlling for several other factors.

The Value Relevance of Intangible Assets and the Mandatory Adoption of IFRS

Using a sample of Italian publicly traded firms in the period of 1996-2006, we analyze whether and to what extent the mandatory adoption of IFRS has affected the value relevance of intangible assets. Prior literature has claimed that IFRS adoption should improve the quality of accounting information and reduce information asymmetries. We find a statistically significant decrease in the value relevance of intangible assets, and in particular of goodwill, after the IFRS adoption. In contrast, in the Italian setting investors’ evaluation of R&D expenditures seems not to be value relevant under either accounting standards.

Adoption of International Financial Reporting Standards: Impact on the Value Relevance of Intangible Assets

We examine whether the value relevance of reported intangibles differs between financial reporting regimes pre‐ and post‐adoption of Australian Equivalents to International Financial Reporting Standards (AIFRS) and Australian Accounting Standards (AGAAP) respectively. Using AIFRS and AGAAP measures of goodwill and identifiable intangible assets for the same financial year and testing their association with share prices, we find evidence that AIFRS generally convey incremental useful information for investors about goodwill. For aggregated identifiable intangible assets there is no evidence that AIFRS conveys information beyond that in AGAAP. In contrast, we find evidence that AGAAP provides incremental information for investors in relation to identifiable intangibles, but not goodwill.

The value relevance of human capital, corporate governance and intangible assets in growth enterprises: evidence from Hong Kong

This article attempts to investigate the value relevance of intangible assets, human capital and corporate governance disclosed in the Initial Public Offer (IPO) prospectuses of growth enterprises in Hong Kong. Prior studies have explored the relevance of prospectus earnings forecasts for investors and the determinants of the accuracy of such estimates. However, for enterprises that advance with dependence on new knowledge and technological innovation in emerging business sectors, recent studies have suggested the value relevance of intangible assets and other intangible factors, namely, human capital and corporate governance. The experience of growth enterprises that went through an IPO in Hong Kong provides an independent source of evidence for the exploration of the value relevance of such intangible factors. Through the analysis of the disclosed information of 214 growth enterprises, this study confirms the significance of specific components of these intangible factors and an integrative relevance of financial and nonfinancial information on Value Sustainability (VS). It argues that the regulator's enforcement on adequate disclosure and accounting treatment, pertinent to the recently harmonised reporting standard to uncover the underlying fundamentals of a listing candidate, is more critical than solely pinpointing its corporate governance disclosures.

The Value Relevance of Brand Assets Recognized by UK Firms

This study examines whether managers discretionary valuations of intangible assets are relevant despite contracting incentives to over-state them. We do so by examining the value relevance of brand assets recognized by 30 UK firms beginning in 1985. Our study adds to the literature on the value-relevance of intangible assets by examining valuations of managers who could be subject to contracting incentives, rather than of outside parties. We add to the evidence on managers? discretionary (re)valuations by explicitly partitioning the sample on measures of contracting incentives, and by examining a situation where contracting incentives are likely strong. Our results suggest that brand values recognized in financial statements are associated with values capitalized in stock prices, and with future net income, even for firms with the greatest contracting incentives firms affected by the London Stock Exchange (LSE) rule requiring shareholder approval for acquisitions/disposals, and high-leverage firms. These findings are robust to several sensitivity checks. We also find modest evidence that contracting incentives have an effect on value-relevance the coefficient relating brand assets to market values are higher for firms without any transactions that avoided the LSE rule.

Intangible Assets and Equity Valuation in the Pre-SEC Era

Some have recently called for expanded reporting of intangible asset values asserting that their limited recognition under U.S. GAAP has eroded the usefulness of financial statements. In response to this interest, accounting researchers have sought to provide empirical evidence on the role of intangibles in equity valuation. Aboody and Lev [1998] document that the software development cost assets which some firms elect to capitalize under SFAS 86 are positively related to share prices. Extending this research to other intangibles is difficult since U.S. GAAP takes a conservative view towards recognition of such assets. Consequently, other studies have examined off-balance sheet measures of intangible asset values (see Lev and Sougiannis [1996], Barth, et al. [1998], and Ittner and Larcker [1998]) or data from other countries where firms face less restrictive reporting rules (see Barth and Clinch [1998]). We contribute to this literature by investigating the role of intangibles in equity valuation under a reporting regime where managers are allowed virtually unrestricted discretion to capitalize intangible assets. Our sample consists of firms with common equity traded on the New York Stock Exchange (NYSE) in the 1920's. These firms operated in a reporting environment which permitted managers broad discretion to initially capitalize intangibles, determine subsequent amortization and revaluation policies, and structure supplementary disclosures (if any). Consequently, pre-SEC industrials firms reported a broad range of intangibles with material carrying amounts on their balance sheets. We investigate the value-relevance of intangible assets using valuation models where intangibles play two possible roles in equity valuation. The first is a direct role where intangibles can map positively into share price and the second is an interactive role where the level of intangibles conditions investor evaluation of reported earnings. If investors perceive capitalized intangibles to be legitimate assets, their carrying values will be positively related to share price. Alternatively, if investors view the capitalization of intangibles as a means for managers to overstate reported earnings, then the coefficient mapping earnings into price will decline as the level of capitalized intangibles increases. The results from our primary tests indicate no significant positive relation between capitalized intangibles and share prices. We do find evidence that the coefficient relating earnings to share price decreases with the level of capitalized intangibles, consistent with a perception by investors that managers may overstate earnings by capitalizing intangibles. We also document that separate reporting for intangible assets strengthens the relation between price and summary balance sheet measures. Book value is not significantly related to share price but the coefficient mapping tangible book value into share price is positive and highly significant when intangibles are disaggregated from book value. Finally, earnings are a highly significant determinant of equity price suggesting that, at least for our sample, investors may identify the existence of economically relevant intangibles on the basis of reported earnings rather than carrying values for intangibles reported in the balance sheet.