The influence of IFRS mandatory adoption on value relevance of intangible assets in Italy

Abstract

PurposeFollowing the mandatory IFRS adoption in 2005, the Continental European accounting systems changed. This study investigates if it influenced the value relevance of intangible assets in Italy.Design/methodology/approachTo measure the value relevance of intangible assets of non-financial firms listed on Borsa Italiana from 2000 to 2015, this study isolates the impact of several classes of intangible assets on stock prices and then classifies firms according to intangible asset intensity.FindingsGoodwill, intellectual property and other rights, start-up costs or other intangible assets are significantly correlated with stock prices when Italian accounting standards were applied prior to 2005, whereas research and development expenditures are not associated with stock prices. The mandatory IFRS adoption has exerted positive effects only for goodwill and research and development expenditures, and it is negative for start-up costs. Further, when intangible-intensive firms are considered in the post-IFRS adoption period, declining value relevance exists relative to intellectual property and other rights or research and development expenditures; goodwill and other intangible assets increase in value relevance.Research limitations/implicationsThis study is subject to country-specific determinants and firm-specific characteristics. It treats accounting standards as exogenous, and the classification reflects the concentration of intangible assets in an industry. By relying on investors’ assessments of risk, it does not sufficiently explore the risk conveyed by future abnormal earnings and earnings volatility.Practical implicationsThis study offers insights for measuring and reporting intangible assets, by specifying that their value relevance depends on their level and aggregation.Originality/valueThis study investigates the value relevance of intangible assets in the post-IFRS period, in reference to intangible-intensive firms. It also divides intangible assets into several classes to specify the value relevance of goodwill.

Do IFRS Promote Transparency? Evidence from the Bankruptcy Prediction of Privately Held Swedish and Norwegian Companies

“…Some studies have found that the value relevance of intangibles is lower when using IFRS. For instance, a study by Cordazzo and Rossi (2020) based on a sample of nonfinancial listed Italian firms from 2000 to 2015 found that intangibles as a whole were not value relevant under IFRS, except for goodwill and research and development expenditures. However, when they divided the sample into intangible-intensive or non-intangibleintensive firms, the value relevance of research and development expenditures fell after the IFRS adoption.…”

Intellectual capital reporting and mandatory adoption of post-IFRS – An empirical analysis using computational linguistic tools

“…While there was no evidence for any incremental information value of earnings and net assets immediately after post-IFRS adoption year of 2005, it was found to be incrementally significant during the succeeding year of 2006. Cordazzo and Rossi (2020) found IA to be value-relevant only under the Italian GAAP. One of the likely reasons for the above contrast is the specificity of these results to a single country based on its idiosyncratic local GAAP.…”

“…Yeow and Mahzan (2013) mentioned access to cheaper capital and other resource dependencies as the primary reason for post-IFRS adoption by emerging and developing economies. On the contrary, there are studies which confront the ability of post-IFRS to increase the information value of disclosures and therefore its ability to influence value relevance of accounting information (Lin and Chen, 2005;Gjerde et al, 2008;Iatridis and Rouvolis, 2010;Cordazzo and Rossi, 2020). At present, IASB claims post-IFRS as the mandatory standard in 144 countries for their domestically public listed companies (IASB, 2018).…”

“…Various studies confront the ability of post-IFRS to increase the information value of disclosures and therefore its ability to influence value relevance of accounting information (Lin and Chen, 2005;Gjerde et al, 2008;Iatridis and Rouvolis, 2010;Cordazzo and Rossi, 2020).…”

The Effect of Adoption of Ifrs Based Accounting Standards: Indian Evidences of Enhanced Value Relevance and Uniformity

“…The paper has observed that nonlinearity of information is negative after the switch to the new regime which proves that financial statements have become more comparable. Cordazzo and Rossi (2019) have studied about the impact of value relevance of intangibles in Italy. Kadri et al (2009) have conducted a study in Malaysia and clinched some important information about relevance of book values after IFRS regime.…”