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The Value of Discretion in Africa: Evidence from Acquired Intangible Assets Under IFRS 3

Author

Listed:
  • Abongeh A. Tunyi

    (Sheffield University Management School, University of Sheffield, UK)

  • Dimu Ehalaiye

    (School of Accountancy, Massey Business School, Massey University, New Zealand)

  • Ernest Gyapong

    (College of Business, Zayed University, Abu Dhabi, UAE)

  • Collins G. Ntim

    (Centre for Research in Accounting, Accountability and Governance (CRAAG), Department of Accounting, Southampton Business School, University of Southampton, UK)

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.

Suggested Citation

  • Abongeh A. Tunyi & Dimu Ehalaiye & Ernest Gyapong & Collins G. Ntim, 2020. "The Value of Discretion in Africa: Evidence from Acquired Intangible Assets Under IFRS 3," The International Journal of Accounting (TIJA), World Scientific Publishing Co. Pte. Ltd., vol. 55(02), pages 1-39, June.
    • Handle: RePEc:wsi:tijaxx:v:55:y:2020:i:02:n:s1094406020500080
    DOI: 10.1142/S1094406020500080
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    Citations

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    Cited by:

    1. Vincent Tawiah & Ernest Gyapong, 2023. "International financial reporting standards, domestic debt finance and institutional quality: Evidence from developing countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2915-2936, July.
    2. Abiodun Omidiji & Nives Botica Redmayne & Dimu Ehalaiye & Ernest Gyapong, 2024. "Internal audit in microfinance institutions‐ evidence from transitional and developing economies," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 32(1), pages 109-141, January.
    3. Hui Wang & Haiming Chen & Vincent Tawiah, 2023. "Does Ethical Behaviour Affect Sustainable Development? Evidence from Developed and Developing Countries," Sustainability, MDPI, vol. 15(13), pages 1-16, June.

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