Do IFRS Provide Better Information about Intangibles in Europe ?

Abstract

IAS/IFRS are presumed to provide more uniform and value-relevant information that better reflects a company’s financial situation and assets and, in particular, provides greater transparency in the area of intangible assets. In this paper, we study the information content of these assets under IAS/IFRS (from 2005 to 2007) when compared to Local GAAP (from 2002 to 2004) for European listed companies. Test 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 standards 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. So, the results show that low national differences persist despite the use of common accounting standards.

Keywords: IFRS, IAS, GAAP, intangible asset, goodwill, performance, return

JEL Classification: M41, G12, G31