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The Value of Discretion in Africa: Evidence from Acquired Intangible Assets Under IFRS 3
The International Journal of Accounting, Volume: 55, Issue: 02, Start page: 2050008
Swansea University Author: Tunyi Tunyi Abongeh
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DOI (Published version): 10.1142/s1094406020500080
Abstract
This 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...
| Published in: | The International Journal of Accounting |
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| ISSN: | 1094-4060 2213-3933 |
| Published: |
World Scientific Pub Co Pte Lt
2020
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| Online Access: |
Check full text
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| URI: | https://cronfa.swan.ac.uk/Record/cronfa65111 |
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| Abstract: |
This 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 and 2016, across seven 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. Our results further show 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. |
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| Keywords: |
Managerial discretion, IFRS 3, acquired intangible assets, business combinations, institutional quality, Africa |
| College: |
Faculty of Humanities and Social Sciences |
| Issue: |
02 |
| Start Page: |
2050008 |