Materiality and Disclosure Quality of Identifiable Intangible Assets: Evidence from Germany
Corporate Ownership and Control, Vol. 12 (2), 2015, p. 381-400
Posted: 10 May 2014 Last revised: 23 Feb 2015
Date Written: December 10, 2013
This paper examines both the materiality of intangibles and the related disclosure quality under IFRS in the notes of firms on the German benchmark stock index DAX during the four-year period 2008-2011. As proxies, we use the relation of intangibles-to-equity (materiality) and a disclosure index of our design (disclosure quality) that measures both the volume and presentation of information. Furthermore and contrary to the majority of prior studies on the disclosure of intangibles, our index measures disclosure quality itself, and is not restricted to voluntary or mandatory disclosures. In accordance with our predictions, we find in general that intangibles are considerably material, but that the related disclosure quality is low and remains at that low level over the period analyzed. Additionally, both aspects differ widely between firms. Finally, we find support for the hypothesis that management disclosure policies place more emphasis on the amount of information than on its presentation. Our results illustrate and promote the need for the improved regulation of disclosures in the notes, as currently discussed by the major standard setters IASB and FASB.
Keywords: Disclosure Quality, Disclosure Index, Intangible Assets, IFRS
JEL Classification: M41, M48, C43, G14
Suggested Citation: Suggested Citation