Value Relevance of Accounting Information for Intangible-Intensive Industries and the Impact of Scale: The US Evidence

June 7, 2013 Leave a comment

Value Relevance of Accounting Information for Intangible-Intensive Industries and the Impact of Scale: The US Evidence

Mustafa Ciftci State University of New York at Binghamton

Masako N. Darrough City University of New York – Baruch College – Stan Ross Department of Accountancy

Raj Mashruwala University of Calgary – Haskayne School of Business

May 28, 2013
European Accounting Review Forthcoming

Abstract: 
The structural shift in the US from a tangible- to an intangible-intensive economy raises a concern that GAAP-based reporting might have lost its usefulness to investors. Amir and Lev (1996) argue that accounting information is not useful for intangible-intensive firms. In contrast, Collins et al. (1997) find that the value relevance (measured by R-squared) of accounting information has increased over time and that value relevance for intangible-intensive industries is as high as that for tangible-intensive industries. In this article we attempt to resolve the above discrepancy by examining the impact of scale on R-squared (Brown et al., 1999). We find that, after controlling for scale, R-squared is lower for intangible-intensive industries than for non-intangible-intensive industries and has declined over time for intangible-intensive industries but remained stable for non-intangible-intensive industries. Interestingly, the declining trend ended with the demise of the “New Economy” period (NEP) (Core et al., 2003), and value relevance for both industry groups appears to be restored in the post-NEP to the pre-NEP level. We also find that R&D capitalization increases value relevance for intangible-intensive industries, but does not completely eliminate the gap between the two groups.

Filed under Research

Unknown's avatarAbout bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a comment