Does managerial discretion affect the value relevance of goodwill impairment information under IFRS? Korean evidence

2019 ◽  
Vol 27 (1) ◽  
pp. 1-23
Author(s):  
Jong-Seo Choi ◽  
Ji-Ahn Nam
Keyword(s):  
Value Relevance ◽  
Managerial Discretion ◽  
Goodwill Impairment ◽  
Korean Evidence

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

2020 ◽  
Vol 55 (02) ◽  
pp. 2050008
Author(s):  
Abongeh A. Tunyi ◽  
Dimu Ehalaiye ◽  
Ernest Gyapong ◽  
Collins G. Ntim
Keyword(s):  
Financial Reporting ◽  
Intangible Assets ◽  
Value Relevance ◽  
Managerial Discretion ◽  
African Countries ◽  
Target Firm ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
Main Hypothesis

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.

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