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| Author: | Kanodia, C. Sapra, H. Venugopalan, R. |
| Title: | Should intangibles be measured: What are the economic trade-offs? |
| Journal: | Journal of Accounting Research
2004 : MAR, VOL. 42:1, p. 89-120 |
| Index terms: | Accounting Markets Prices Costs Investments |
| Language: | eng |
| Abstract: | This study investigates whether a firm's intangible investments (for intangibles here as: int. and for investments as: inv.) should be measured and separated from operating expenses. It is found that the information extracted from accounting reports of inv. and earnings is different when int. are measured and identified separately from operating expenses than when int. are left commingled with operating expenses. This difference in the market's information causes a change in the behaviour of market prices, inducing changes in the firm's inv. and cash flows. Thus, from a real effects perspective, measuring int. is not unambigously desirable. This study identifies the conditions under which providing information on int. may be desirable. This study also shows the inadequacy of statistical associations btw. accounting numbers and prices as basis for evaluating the desirability of measuring int. inv. It is shown that the measurement of int. alters the very distribution of cash flows about which the measurement regime is seeking to provide information. |
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