Should Additional Disclosure be Mandated for Intangibles Assets? Insights from Purchase Price Allocations

Accounting for intangible assets is the object of an intense debate between advocates of increasing the mandatory requirements and partisans of the current voluntary disclosure system. We provide empirical evidence allowing to discriminate between these two competing cases. Examining disclosure of business combinations enables to measure the market consequences of newly acquired intangible assets that must be completely recognized under FAS 141, either as separately identified intangibles or as goodwill. We investigate the consequences of the purchase price allocation on bidask spreads and analysts’ forecast dispersion as well as the impact of the disclosure quality on cumulated abnormal returns. The analysis mainly provides evidence in favor of mandating additional disclosure for intangible assets.