Tunyi, A. orcid.org/0000-0002-5761-931X, Ehalaiye, D., Gyapong, E. et al. (1 more author) (2020) The value of discretion in Africa: Evidence from acquired intangible assets under IFRS 3. International Journal of Accounting, 55 (02). 2050008. ISSN 1094-4060
Abstract
The 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 to 2016, across 7 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. Importantly, we highlight a caveat to this argument by showing 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.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2019 World Scientific Publishing. This is an author-produced version of a paper subsequently published in International Journal of Accounting. Uploaded in accordance with the publisher's self-archiving policy. |
Keywords: | Managerial discretion; IFRS 3; acquired intangible assets; business combinations; institutional quality; Africa |
Dates: |
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Institution: | The University of Sheffield |
Academic Units: | The University of Sheffield > Faculty of Social Sciences (Sheffield) > Management School (Sheffield) |
Depositing User: | Symplectic Sheffield |
Date Deposited: | 12 Dec 2019 15:48 |
Last Modified: | 26 Jun 2021 00:38 |
Status: | Published |
Publisher: | World Scientific Publishing |
Refereed: | Yes |
Identification Number: | 10.1142/S1094406020500080 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:154562 |