Global Value Relevance of Intangibles

Scholer F

Published on: 2020-02-25


We isolate the intangible-resource related accounting numbers and study the value relevance contribution of intangibles across countries and culture, and across different accounting regimes. In contrast to previous value relevance studies, our study is a global cross-country study. From the global ORBIS-database, we selected all listed non-financial with non-negative equity and applicable intangible assets and R&D information in the last available financial year, which left us with 22,372 companies from 113 different countries. For our categorisation of cultural differences, we used Hofstede’s cultural indexes adapted to Gray’s accounting values, and using information from PWC we established a categorisation of each country’s accounting regime reflecting if IFRS is required, permitted, or disallowed for listed companies in each country. For our study we used the Ohlson (1995) framework when we separated and evaluated intangibles using specific accounting items. We find uniform attitudes towards mapping of intangibles into prices in the four accounting regimes identified, despite differences in culture and economic situation in different countries. Consequently, the production of completely comparable annual reports across culturally different countries by use of some common global set of accounting standards seems unnecessary.


Intangibles; IFRS; Value relevance; Accounting values


The objective of valuation research is to investigate the empirical relation between stock market values (or changes in values) and specific accounting numbers with the purpose of assessing the characteristics of accounting numbers and their relation to the value of the company [1,2]. One of the objectives of using the IFRS framework throughout the world is to facilitate easy comparability of the financial information presented by the companies. The proponents of IFRS argue that a universal financial language offers many advantages: A uniform set of standards increases comparability when it is faithfully applied (i.e., credibly implemented and resulting in an increase in uniformity). Cross-border businesses benefit from reduced preparation costs, and cross-border trading in securities increases as international investors can more easily compare the performance of companies based in different countries. Several studies have showed that introduction of IFRS generally increases the accounting quality in many countries; see for instance [3-6]. Companies applying IFRS generally evidence less earnings management, more timely loss recognition, and more value relevance accounting amounts, and they also evidence improvements in accounting quality [7]. Francis specifies value relevance as one of the most important attributes of accounting quality [8]. They argue that value relevance is a more important attribute of accounting quality than conservatism or timeliness. Due to the widespread adoption of new information technologies, intangible assets as such are now viewed as a major source for creating corporate value, whereas cost-based realized and measured tangible net assets are seen as less important Lev, This paper addresses the concerns about the value relevance of specific accounting data by focusing on the recognized intangible assets and expenses and the implications of the world-wide adoption of IFRS, since intangibles are treated quite differently under IFRS than under some other GAAP such as the US-GAAP. Two major research questions are explored. First: Is recognized intangibles value- relevant to investors? That is, do recognized intangibles help explain the variation of market values when the effects of book value and earnings are controlled for? Second: do the differences in accounting practices and systems affect the value relevance of the book value of equity, earnings and recognized intangibles? Moreover, unlike previous country-based studies such as [9]. That focus on a specific subclass of intangible assets (goodwill), this paper analyses the value relevance of the different subclasses of reported identifiable intangible assets and goodwill as well as intangible expenses on a global basis. In order to operationalize value relevance as the ability of book values to explain market equity values, we use the framework developed by [10]. We infer the value relevance of accounting variables by analyzing panel data drawn from a global sample of 22,372 observations of listed companies from 113 different countries. Hofstede 1980, 2001 documents that people are organized, do things, and think differently in different countries as shown in his well-known cultural indicators. Based on this framework on cultural differences [11,12]. Map the Hofstede indicators into accounting values by transforming the cultural differences into accounting constructs based on how the cultural indicators are hypothesized to affect accounting practices and systems and hereby also the treatment of intangibles. The remainder of the paper is structured in the following way. In Section II we provide the motivation and literature review for the study by examining literature on value relevance and empirical use of Ohlson and we develop our hypotheses. In Section III we describe the research design, and our data collection procedure. In Section IV we present the findings and discuss some implications. Finally, we conclude the paper in Section V.