Market assessment of intangibles and voluntary disclosure about innovation: the incidence of IFRS

Purpose - The purpose of this paper is to investigate the incidence of International Financial Reporting Standard (IFRS) on stock market assessment of intangibles and voluntary disclosure about innovation. Design/methodology/approach - The authors develop three regression models. The first model investigates the stock market valuation of intangible assets and disclosure about innovation. The second model desegregates earnings to assess the relevance of components related to intangibles. The third model investigates how intangible expenses and voluntary disclosure affect analysts forecast dispersion. Findings - Results show that the value relevance of intangible assets and expenses improves with the adoption of IAS 38. Overall, results indicate a decrease in the value relevance of voluntary disclosure about innovation under IFRS. More specifically, results suggest some overlap in the information content of mandated and voluntary disclosure for stock market valuation of intangible assets under IFRS. Findings also suggest that voluntary disclosure moderates market's assessment of expensed intangibles under both Canadian GAAP and IFRS. Research limitations/implications - IAS 38 requires entities to recognize an intangible asset if certain criteria are met and to disclose specific information about it. In such a context, market participants may refer to a greater extent to financial reporting and to a lesser extent to voluntary disclosure when valuating intangibles. Practical implications - Managers will have an incentive to better target their communications to ensure a degree of complementarity with financial reporting. In this sense, this study contributes to the voluntary disclosure literature. Originality/value - To the best of the authors' knowledge, this is the first study to investigate the relationship between mandatory disclosure and voluntary disclosure about intangibles and evaluate the impact of IFRS on this matter.