Intangibles Mismeasurement, Synergy, and Accounting Numbers: A Note

13 Pages Posted: 5 Apr 2006

See all articles by Jean-Francois Casta

Jean-Francois Casta

University Paris-Dauphine - DRM Finance

Olivier J. Ramond

Université Paris Dauphine - CEREG Research Centre

Date Written: September 2005

Abstract

For the last two decades, authors (e.g. Ohlson, 1995; Lev, 2000, 2001) have regularly pointed out the enforcement of limitations by traditional accounting frameworks on financial reporting informativeness. Consistent with this claim, it has been then argued that accounting finds one of its major limits in not allowing for direct recognition of synergy occurring amongst the firm intangible and tangible items (Casta, 1994; Casta & Lesage, 2001). Although the firm synergy phenomenon has been widely documented in the recent accounting literature (see for instance, Hand & Lev, 2004; Lev, 2001) research hitherto has failed to provide a clear approach to assess directly and account for such a henceforth fundamental corporate factor.

The objective of this paper is to raise and examine, but not address exhaustively, the specific issues induced by modelling the synergy occurring amongst the firm assets whilst pointing out the limits of traditional accounting valuation tools.

Since financial accounting valuation methods are mostly based on the mathematical property of additivity, and consequently may occult the perspective of regarding the firm as an organized set of assets, we propose an alternative valuation approach based on non-additive measures issued from the Choquet's (1953) and Sugeno's (1997) framework. More precisely, we show how this integration technique with respect to a non-additive measure can be used to cope with either positive or negative synergy in a firm value-building process and then discuss its potential future implications for financial reporting.

Keywords: Financial reporting, accounting goodwill, assets synergy, non-additive measures, Choquet's framework

JEL Classification: C63, G12, G31, M41, M44

Suggested Citation

Casta, Jean-Francois and Ramond, Olivier J., Intangibles Mismeasurement, Synergy, and Accounting Numbers: A Note (September 2005). Available at SSRN: https://ssrn.com/abstract=860824 or http://dx.doi.org/10.2139/ssrn.860824

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

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