The Value Implications Of Intangible Assets, Development Expenditure And Goodwill

Based on the new regulations on the disclosure of development expenditure, goodwill and intangible assets under the Enterprise Accounting Standards (2006), we test the relationship between the proportion of development expenditure to total assets, the proportion of intangible assets to total assets, the proportion of goodwill to total assets and the abnormal return, as well as the relationship between them and the earning quality. We find that the proportion of development expenditure to total assets can well explain both the abnormal return and the earning quality. In addition, the proportion of goodwill to total assets and the proportion of intangible assets to total assets, also have a significant positive explanatory power to the earning quality. Moreover the development expenditure is more powerful on the explanation of the company’s earning quality than goodwill, but goodwill is more powerful on the explanation of the company’s earning quality than the intangible assets.Next, we propose the following policy recommendations:(1) to maximize shareholder value, managers should actively promote and protect the company’s internal R&D activities;(2) for the regulatory authorities, they should set up to guide the disclosure of development expenditure information and standardize the information disclosure of listed companies;(3) to make value analysis, we should pay attention to the role of intangible assets, and increase investment in intangible assets to improve the value of intangible assets;(4) for the accounting policy-making authority, they shall promptly amend the relevant accounting standards, mandatory for listed companies to disclose the Statements of goodwill structure and formation in detail, so as to provide investors with more value-relevant information.