Economic Properties of Intangibles Recognized Under Domestic Accounting Standards: Evidence from Pre-Ifrs Major European Markets

44 Pages Posted: 5 Apr 2006 Last revised: 15 Jun 2015

See all articles by Jean-Francois Casta

Jean-Francois Casta

University Paris-Dauphine - DRM Finance

Olivier J. Ramond

Université Paris Dauphine - CEREG Research Centre

Lionel Escaffre

University of Angers - Laboratoire Angevin de Recherche en Gestion des Organisations (LARGO)

Date Written: July 1, 2008

Abstract

This study investigates whether European domestic GAAPs used for intangibles recognition prior to the IFRS adoption exhibit major differences while examining the relationship between a firm's economic (financial, operating and competitive) performance and its recognized intangible investment (RII). Using a five-European-country sample over the pre-IFRS compliance period 1993-2004, we first provide evidence that, independently of the intangibles accounting recognition practices, investors adopt a short-term perspective or "myopic view" while constructing their portfolios by penalizing firms with high RII. Secondly, contrary to the resource-based view, our results suggest that RII do not underpin under any accounting treatment better competitive position inside a specific industry. Finally, our findings clearly support the idea that EU continental accounting standards, while opposed to Anglo-Saxon settings, ease the relationship existing between RII and firm operating performance. This last result would suggest that IFRS adoption could lead to disconnect operating margins from RII and subsequently challenge the widespread claim that IFRS help produce higher-quality reporting about a firm's operating activities.

Keywords: Intangibles, Goodwill, R&D, Recognition, Domestic GAAPs, Usefulness, Relevance, Informativeness

JEL Classification: G31, M21, M41

Suggested Citation

Casta, Jean-Francois and Ramond, Olivier J. and Escaffre, Lionel, Economic Properties of Intangibles Recognized Under Domestic Accounting Standards: Evidence from Pre-Ifrs Major European Markets (July 1, 2008). Available at SSRN: https://ssrn.com/abstract=860705 or http://dx.doi.org/10.2139/ssrn.860705

Jean-Francois Casta

University Paris-Dauphine - DRM Finance ( email )

Place du Maréchal de Lattre de Tassigny
Paris, 75775
France

Olivier J. Ramond (Contact Author)

Université Paris Dauphine - CEREG Research Centre ( email )

Place du Maréchal de Lattre de Tassigny
Paris, 75116
France

Lionel Escaffre

University of Angers - Laboratoire Angevin de Recherche en Gestion des Organisations (LARGO)

UFR Droit, Economie et Gestion
13, allée François Mitterrand, BP 3633
49036 ANGERS CEDEX 01
France

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