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IFRS3, Value Relevance of Acquired Intangible Assets and Institutional Quality

December 14 @ 11:00 am - 12:30 pm

This talk examines the value relevance of intangible assets acquired during business combinations under the International Financial Reporting Standard (IFRS) 3, and consequently, ascertains the extent to which the quality of the broader underlying institutional environment moderates their value relevance. Using a large dataset, consisting of 21,853 firm-year observations from 1996 to 2016 period relating to 2,516 listed firms across 17 African countries, our results are three-fold. First, our results obtained from estimating the entire sample that covers both the pre- and post-2008 IFRS 3 amendment periods suggest that acquired intangible assets (AIA) are not value relevant. Second and by contrast, our findings indicate further that AIA estimated based on the post-2008 IFRS 3 amendment are value relevant. Finally, we distinctively show that the value relevance of AIA is moderated by the underlying institutional quality (i.e., the value relevance of AIA is greater in high-quality institutional contexts, such as strong rule of law, high government effectiveness, regulatory quality, and voice and accountability, but low corruption, political instability and violence). By contrast, we do not find any evidence to suggest that AIA are value relevant within weak institutional environments. The central tenor of our findings remains unchanged to the use of alternative AIA, firm value and goodwill/intangible proxies, as well as potential endogeneities. Overall, our findings have important implications for accounting standard-setters, governments, investors and practitioners.


RHG24, Rutherford House
Featherston Street
Wellington, New Zealand