The Usefulness of Acquired Intangible Asset Fair Values in Predicting Future Payoffs

56 Pages Posted: 6 Nov 2018 Last revised: 19 Jun 2023

See all articles by John M. McInnis

John M. McInnis

University of Texas at Austin - Department of Accounting

Brian Monsen

Ohio State University (OSU) - Department of Accounting & Management Information Systems

Date Written: June 19, 2023

Abstract

Proponents of recognizing intangible assets argue intangibles are a key source of value and profitability, while opponents note the considerable inherent measurement uncertainty. Using a broad sample of business combinations from 2003 to 2014, we find that the recorded values of acquired intangibles are a significant predictor of future operating income and cash flows at one-, three-, five-, and seven-year horizons, using both in- and out-of-sample tests. Further, the predictive ability of intangibles dominates that of acquired tangibles, with goodwill being more important, but identifiable intangibles contributing as well. In cross-sectional tests we find the predictive ability of intangibles weakens in settings where the measurement reliability of intangibles is lower. We find customer-related intangibles, and trademarks to a lesser degree, drive the predictive ability of identifiable intangibles. These results are informative to policy makers considering whether hard-to-value intangibles can be measured with sufficient reliability to be useful in predicting payoffs.

Keywords: intangible assets; mergers; acquisitions; goodwill

JEL Classification: M41; G34

Suggested Citation

McInnis, John M. and Monsen, Brian, The Usefulness of Acquired Intangible Asset Fair Values in Predicting Future Payoffs (June 19, 2023). Available at SSRN: https://ssrn.com/abstract=3279123 or http://dx.doi.org/10.2139/ssrn.3279123

John M. McInnis

University of Texas at Austin - Department of Accounting ( email )

Austin, TX 78712
United States
512-232-6791 (Phone)

Brian Monsen (Contact Author)

Ohio State University (OSU) - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

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