Differences in the value relevance of identifiable intangible assets

Motivated by investor criticisms of current accounting standards, this study investigates whether differences exist in how acquired identifiable intangible assets relate to investors’ expectations about the entity’s cash flow prospects. Some investors assert that all acquired intangibles should be subsumed within goodwill, while others prefer separate recognition of identifiable intangibles only when they are strategically important sources of future cash flows. Still other investors call for separate recognition from goodwill only when identifiable intangibles are separable from the business, have defined useful lives, and have identifiable revenue streams (i.e., “wasting” intangibles). Consistent with some investor views, we find cross-sectional variation in the value relevance of identifiable intangibles based on differences in underlying asset characteristics. Our primary findings suggest that strategically important and wasting intangibles provide information different from that provided by goodwill. These findings inform standard setters as they evaluate recognition and disclosure alternatives for identifiable intangible assets.