Differences in the Value Relevance of Identifiable Intangible Assets Acquired in Business Combinations

52 Pages Posted: 19 Aug 2019 Last revised: 3 Jun 2020

See all articles by Zach King

Zach King

University of Wisconsin-Madison

Thomas Linsmeier

University of Wisconsin-Madison

Daniel Wangerin

Wisconsin School of Business

Date Written: June 2, 2020

Abstract

Motivated by investor criticisms of current accounting for business combinations, this study investigates whether differences exist in how acquisition date fair values of identifiable intangible assets relate to investors’ expectations about the entity’s future cash flow prospects. Some investors assert that all acquired intangibles should be subsumed within goodwill; while, others call for separate recognition of intangibles only when they are strategically important sources of future cash flows. Still other investors prefer separate of recognition of identifiable intangibles that are separable from the business, have defined useful lives, and have identifiable revenue streams. Our primary findings suggest that separate recognition of strategically important intangibles is value relevant, and that there is no loss of value relevant information if other (non-strategic) intangibles are subsumed in goodwill. Consistent with some investor views, we also find cross-sectional variation in value relevance based on differences in underlying asset characteristics.

Keywords: mergers and acquisitions, intangible assets, purchase price allocations, fair value

JEL Classification: D82, G34, M41

Suggested Citation

King, Zachary and Linsmeier, Thomas and Wangerin, Daniel D., Differences in the Value Relevance of Identifiable Intangible Assets Acquired in Business Combinations (June 2, 2020). Available at SSRN: https://ssrn.com/abstract=3438250 or http://dx.doi.org/10.2139/ssrn.3438250

Zachary King (Contact Author)

University of Wisconsin-Madison ( email )

Madison, WI
United States

HOME PAGE: http://wsb.wisc.edu/directory/students/phd/students/zachary-king

Thomas Linsmeier

University of Wisconsin-Madison ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States

Daniel D. Wangerin

Wisconsin School of Business ( email )

975 University Avenue
4104 Grainger Hall
Madison, WI 53706
United States

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