TY - JOUR
T1 - Should Intangibles Be Measured
T2 - What Are the Economic Trade-Offs?
AU - Kanodia, Chandra
AU - Sapra, Haresh
AU - Venugopalan, Raghu
N1 - Copyright:
Copyright 2012 Elsevier B.V., All rights reserved.
PY - 2004/3
Y1 - 2004/3
N2 - We investigate whether a firm's intangible investments should be measured and separated from operating expenses. We find that the information extracted from accounting reports of investments and earnings is different when intangibles are measured and identified separately from operating expenses than when intangibles are left commingled with operating expenses. This difference in the market's information causes a change in the behavior of market prices, inducing changes in the firm's investments and cash flows. Thus, from a real effects perspective, measuring intangibles is not unambiguously desirable. We identify the conditions under which providing information on intangibles may be desirable. This study also shows the inadequacy of statistical associations between accounting numbers and prices as a basis for evaluating the desirability of measuring intangible investments. We show that the measurement of intangibles alters the very distribution of cash flows about which the measurement regime is seeking to provide information.
AB - We investigate whether a firm's intangible investments should be measured and separated from operating expenses. We find that the information extracted from accounting reports of investments and earnings is different when intangibles are measured and identified separately from operating expenses than when intangibles are left commingled with operating expenses. This difference in the market's information causes a change in the behavior of market prices, inducing changes in the firm's investments and cash flows. Thus, from a real effects perspective, measuring intangibles is not unambiguously desirable. We identify the conditions under which providing information on intangibles may be desirable. This study also shows the inadequacy of statistical associations between accounting numbers and prices as a basis for evaluating the desirability of measuring intangible investments. We show that the measurement of intangibles alters the very distribution of cash flows about which the measurement regime is seeking to provide information.
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U2 - 10.1111/j.1475-679X.2004.00130.x
DO - 10.1111/j.1475-679X.2004.00130.x
M3 - Article
AN - SCOPUS:1642309650
SN - 0021-8456
VL - 42
SP - 89
EP - 120
JO - Journal of Accounting Research
JF - Journal of Accounting Research
IS - 1
ER -