The Value Relevance of Brand Assets Recognized by UK Firms

30 Pages Posted: 22 Mar 2000

See all articles by Sanjay Kallapur

Sanjay Kallapur

Indian School of Business

Sabrina Y. S. Kwan

Hong Kong University of Science & Technology (HKUST) - Department of Accounting

Abstract

This study examines whether managers discretionary valuations of intangible assets are relevant despite contracting incentives to over-state them. We do so by examining the value relevance of brand assets recognized by 30 UK firms beginning in 1985. Our study adds to the literature on the value-relevance of intangible assets by examining valuations of managers who could be subject to contracting incentives, rather than of outside parties. We add to the evidence on managers? discretionary (re)valuations by explicitly partitioning the sample on measures of contracting incentives, and by examining a situation where contracting incentives are likely strong.

Our results suggest that brand values recognized in financial statements are associated with values capitalized in stock prices, and with future net income, even for firms with the greatest contracting incentives firms affected by the London Stock Exchange (LSE) rule requiring shareholder approval for acquisitions/disposals, and high-leverage firms. These findings are robust to several sensitivity checks. We also find modest evidence that contracting incentives have an effect on value-relevance the coefficient relating brand assets to market values are higher for firms without any transactions that avoided the LSE rule.

JEL Classification: M41, M44, G12

Suggested Citation

Kallapur, Sanjay and Kwan, Sabrina Y.S., The Value Relevance of Brand Assets Recognized by UK Firms. Available at SSRN: https://ssrn.com/abstract=207248 or http://dx.doi.org/10.2139/ssrn.207248

Sanjay Kallapur (Contact Author)

Indian School of Business ( email )

ISB Campus, Gachibowli
Hyderabad, 500 032
India
+91 40 2318 7138 (Phone)

Sabrina Y.S. Kwan

Hong Kong University of Science & Technology (HKUST) - Department of Accounting ( email )

Clear Water Bay
Kowloon
Hong Kong
+852 2358-7566 (Phone)
+852 2358-1693 (Fax)

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