Impairment of intangible assets and disclosure by Italian banks

Abstract

Purpose The purpose of this paper is to examine the methods used to perform impairment test for intangible assets from a business combination and the information provided by the consolidated financial statements of a Group of Italian banks in the period 2009-2014. The purpose is to verify if, as assumed in literature, there is a positive link between profitability and the tendency of manager’s to post the impairment losses of intangible assets promptly and accurately. Design/methodology/approach The existence of a link between profitability and the quality of disclosure was verified by constructing correlation indices, and then ascertaining not only the reliability but also the strength and direction of the statistical connection between the above two aspects. A multivariate linear regression reconfirmed the results obtained by the previous bivariate analysis. Findings The results confirm the basic assumption, showing that the link between the aspects considered is statistically significant and positive in all the years in question. Originality/value This study fills a gap, given that no papers were found in literature specifically pertaining to banks and other financial institutions. Moreover, the decision to focus the study on Italian banks seems to be particularly appropriate for a number of different reasons: before the financial crisis, Italian banks made numerous acquisitions, posting high amounts for intangible assets; the financial crisis made the stock market prices plummet, thus making it necessary to write-off intangible assets from business combinations; and even before the ESMA, the Bank of Italy intervened on several occasions on the question of reporting, urging Italian banks to comply with disclosure requirements and impairment criteria.

Guest editorial

“…Le (2019) shows that liquidity creation is applicable to Vietnamese banks and that tighter capital requirements may reduce liquidity creation, whereas higher liquidity creation may reduce bank capital and lead to higher risk. Quaranta et al (2019) analyze Italian banks and find the best-performing banks provide the best information on the impairment of intangible assets and a strong link between profitability and the quality of financial reporting. Liem (2019) studies the impact of merging Indonesian state-owned banks into one holding thereby increasing market power and finds an insignificant impact toward bank efficiency (BE), bank soundness (BS), and ROA, but the BE Index and BS Rating are significantly related to ROA.…”