The Relationship between the Capitalization of Intangible Assets and Financial Analysts’ Earnings Forecast Errors : The Effect of IFRS 3 and IAS 38

This study examines whether the information on capitalization of intangible assets improves the precision of analysts' forecasts after the adoption of IFRS 3 and IAS 38 for Asian firms. In addition, we investigate whether the forecast relevance of intangible assets information guided by IFRS 3 and IAS 38 depends on the level of a firm's total potential intangible assets, origins of law, the level of law enforcement, and the level of earnings management. Our empirical results show that, on average, the adoption of IFRS 3 and IAS 38 does not significantly influence the relationship between the capitalization of intangibles and analysts' earnings forecast errors. However, a further analysis indicates that the capitalization of intangibles following the rules of IFRS 3 and IAS 38 significantly improves analysts' earnings forecast accuracy for firms with higher level of underlying intangible assets, firms domiciled in common law countries, and firms that are less suspected of earnings management. Taken together, these results imply that firm characteristics and country-level institutional factors are important determinants of the benefits from adopting IFRS 3 and IAS 38