The Value of Managerial Discretion in Africa: Evidence from Acquired Intangible Assets Under IFRS 3

International Journal of Accounting, Forthcoming

48 Pages Posted: 21 Jan 2020

See all articles by Abongeh A. Tunyi

Abongeh A. Tunyi

The University of Sheffield

Dimu Ehalaiye

Massey University - School of Accountancy

Ernest Gyapong

Massey University

Collins G. Ntim

University of Southampton Business School, UK; University of Southampton

Date Written: December 7, 2019

Abstract

The paper examines the value of managerial discretion in financial reporting by exploring the value relevance of intangible assets acquired in business combinations (AIA) before and after the 2008 International Financial Reporting Standard (IFRS) 3 amendment. The 2008 IFRS 3 amendment gave managers the discretion to recognize previously unrecognized intangibles in the target firm, hence, we posit that if managerial discretion improves the quality of financial reporting, we should observe an increase in the value relevance of AIA after the amendment. Our empirical analysis is based on a dataset of 603 mergers announced between 2004 to 2016, across 7 African countries. Consistent with our main hypothesis, we find that the value relevance of AIA, predominantly acquired goodwill (AGW), increased after the amendment, suggesting that managerial discretion improves the quality of financial information. Importantly, we highlight a caveat to this argument by showing that the value of discretion is moderated by the underlying institutional quality, with the value relevance of AIA being greater in high-quality institutional contexts. Our findings are robust to alternative measures of AIA, alternative models for testing value relevance and various controls for endogeneity. Overall, our findings have important implications for accounting standard-setters, governments, investors and practitioners.

Keywords: Managerial discretion, IFRS 3, acquired intangible assets, business combinations

JEL Classification: M14, G32

Suggested Citation

Tunyi, Abongeh A. and Ehalaiye, Dimu and Gyapong, Ernest and Ntim, Collins G., The Value of Managerial Discretion in Africa: Evidence from Acquired Intangible Assets Under IFRS 3 (December 7, 2019). International Journal of Accounting, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3512587 or http://dx.doi.org/10.2139/ssrn.3512587

Abongeh A. Tunyi

The University of Sheffield ( email )

17 Mappin Street
Sheffield, Sheffield S1 4DT
United Kingdom

Dimu Ehalaiye

Massey University - School of Accountancy ( email )

Palmerston North
New Zealand

Ernest Gyapong

Massey University ( email )

Private Bag 11 222
Palmerston North, Manawatu 4442
New Zealand

Collins G. Ntim (Contact Author)

University of Southampton Business School, UK ( email )

Southampton Business School
Highfield
Southampton, England SO17 IBJ
United Kingdom
+44 (0) 238059 4285 (Phone)
+44 (0) 238059 3844 (Fax)

HOME PAGE: http://www.southampton.ac.uk/business-school/about/staff/cgn1n11.page

University of Southampton ( email )

Southampton, SO17 1BJ
United Kingdom

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