Is Good will more Value Relevant Following the Introduction of IAS-IFRS? Evidence from Italy Considering the Financial Crisis

This paper aims to investigate whether intangible assets, especially goodwill, are value relevant to investors in Italy. In particular, we explore whether the switch from Italian GAAP to IAS-IFRS standards in 2005 affected the value relevance of goodwill and other recognized identifiable intangible assets, after controlling for the book value of equity and earnings effects. The hypotheses aretested by checking for both the statistical significance and the explanatory power of selected variables in a multivariate regression model.We find that goodwill and the identifiable intangible assets are not value relevant under Italian GAAP. Nevertheless, goodwill becomes so following the adoption of IAS-IFRS, but negatively affecting firms’ market value. These results suggest that the impairment approach tends to significantly worsening the investors’ confidence in the reliability of the recognized goodwill amounts. We then split the period 2005–2010 into further sub-periods in order to also take the effects of the financial crisis into account. During the financial crisis, the recognized goodwill continues to generate a negative effect on the market value of the Italian listed companies.Nevertheless, during financial crisis the other intangible assets become value relevant with a positive effect on share price. These findings seem to suggest that the financial crisis has further reduced the trust of investors in the goodwill amounts reported in balance sheets whereas investors’ confidence reveals with reference to the identifiable intangibles