Differences in the Value Relevance of Identifiable Intangible Assets

68 Pages Posted: 19 Aug 2019 Last revised: 24 Dec 2022

See all articles by Zachary King

Zachary King

Fordham University - Gabelli School of Business

Thomas Linsmeier

University of Wisconsin-Madison

Daniel Wangerin

Wisconsin School of Business

Date Written: December 23, 2022

Abstract

Motivated by investor criticisms of current accounting standards, this study investigates whether differences exist in how acquired 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 prefer separate recognition of identifiable intangibles only when they are strategically important sources of future cash flows. Still other investors call for separate recognition from goodwill only when identifiable intangibles are separable from the business, have defined useful lives, and have identifiable revenue streams (i.e., “wasting” intangibles). Consistent with some investor views, we find cross-sectional variation in value relevance based on differences in underlying asset characteristics. Our primary findings suggest that strategically important and/or wasting intangibles provide information different from that provided by goodwill. These findings inform standard setters as they evaluate recognition and disclosure alternatives for identifiable intangible assets.

Keywords: mergers and acquisitions, intangible assets, purchase price allocations, goodwill

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 (December 23, 2022). Available at SSRN: https://ssrn.com/abstract=3438250 or http://dx.doi.org/10.2139/ssrn.3438250

Zachary King (Contact Author)

Fordham University - Gabelli School of Business ( email )

Gabelli School of Business
45 Columbus Ave.
New York, NY 10458
United States

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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