Do IFRS provide better information about intangibles in Europe?

Abstract

Purpose -The purpose of this paper is to study the information content of intangible assets under IAS/IFRS when compared to Local GAAP for European listed companies. Design/methodology/approach -The paper employs multivariate regression models for a sample of 1855 European listed firms in a six-year period, from 2002 to 2004 in Local GAAP and from 2005 to 2007 in IAS/IFRS to investigate the empirical relationships between market value of European firms and book value of their intangible assets. Findings -The results suggest that the book value of other intangible assets of European listed firms is higher under IFRS than Local GAAP and has more informative value for explaining the price of the share and stock market returns. European investors, however, consider the financial information conveyed by capitalized goodwill to be less relevant under IFRS than with Local GAAP. Thus, identified intangible assets capitalized on European company balance sheets provide more value-relevant information for shareholders than unidentified intangible assets that have been transferred into goodwill, with the exception of Italian and Finnish investors. Originality/Value -The paper adds to the existing literature on IFRS by documenting the association between the market value of European listed firms and the book value of their goodwill and other intangibles assets. The study complements prior studies by demonstrating that country differences persist despite the use of common accounting standards and that Legal and regulatory country characteristics as well as market forces could still have a significant impact on the value relevance of accounting data.

Investment and financing decisions of private and public firms

“…While 75% of all firm‐year observations for public firms are filed under IFRS, the fraction of private firm IFRS observations is 9%. Sahut, Boulerne, and Teulon () show that, in Europe, the adoption of IFRS in place of local GAAP has led to a notable increase in recognized intangible assets on firms’ balance sheets. The difference in intangibles remains sizable even if we compare only private and public firm‐year observations reported under IFRS rules.…”

An Empirical Investigation of Goodwill in Austria: Evidence on Management Change and Cost of Capital

“…Lhaopadchan () found that investors and financial analysts perceive goodwill disclosures to some extent as biased and unreliable, and thus they tend to adjust their estimations and decisions accordingly. Likewise, Sahut et al () argued that while the information value of other intangible assets increases, the value relevance of goodwill appears to be declining. This is supported by evidence brought forward by Carlin et al (), who found that it is not possible for investors to replicate disclosures reported in most financial statements, implying that generally users cannot produce informed judgements or make unbiased and efficient decisions.…”

Malaysian Financial Reporting Standard 139 Financial Instruments: Recognition and Measurement Adoption and Intellectual Capital Performance: Evidence from the Malaysian Financial Sector

“…In general, the adoption of MFRSs would have a favorable effect on both financial reporting quality and company performance (e.g., Ballas & Tzovas 2010;Barth, Landsman & Lang 2008;Hayati, Yuriwati, & Putra 2015;Healy, Hutton, & Palepu 1999;Lang & Lundholm 2000;Muniandy & Ali 2012). In addition, previous studies concluded that the financial statements quantity and quality have changed, particularly after adopting MFRSs (Akman 2011;Caruso, Ferrari & Pisano 2016;Sahut, Boulerne & Teulon 2011). Different than other countries, Malaysia provides a unique setting whereby gradual adoption of the IFRSs to become MFRSs was implemented.…”