Intangible Asset Disclosure and Impact on Firm Value - Evidence from Swedish Listed IT Firms
Abstract: Background: In this changing economy, firm are gaining larger amounts of intangible assets.Along with these changes there are several challenges, including not only reporting theseintangibles but also measuring them. Many of these intangible assets are treated asexpenditures and are therefore not capitalized. As a result, a firm’s external reporting mightbecome less likely to fully mirror the firm’s true value.Purpose: Our study aims to examine whether a larger gap between market and book valuesof equity (also, hidden values) may explain a higher voluntary firm disclosure of intangibleassets. We also aim to examine whether firms with higher disclosures of intangible assetsmight contribute to higher market values.Methodology: By analyzing the annual reports from listed firms, we retrieve the total lengthof their disclosures of intangible assets. In order to test our first hypothesis and see whetherhidden values impact the intangible asset disclosure, we use a model based on a study byWhiting and Miller (2008). To test the second hypothesis and examine the impact of theintangible asset disclosure on market capitalization, we use a model based onAbdolmohammadi’s (2005) study. The study has a focus on Swedish listed IT companies,and studies the years 2010-2014.Findings: When analyzing the impact of hidden values on the intangible asset disclosures,we find evidence suggesting a positive relationship. This indicates that firms which havemore (identifiable and non-identifiable) intangible assets have a tendency to disclose more ofthese intangible assets. In the second analysis we find a positive relationship betweenintangible asset disclosure and market capitalization, suggesting that firms that disclosuremore about their intangible assets have higher market capitalizations.
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