Baruch Lev and Juergen H. Daum
Intangible assets have become important factors of value creation in today’s knowledge economy. However, individually they are often commodities and only create value in…
Abstract
Intangible assets have become important factors of value creation in today’s knowledge economy. However, individually they are often commodities and only create value in combination with other production factors. Therefore, in order to manage for performance and value, companies and their managers, as well as their investors, need a better understanding of their role as part of the entire value creation system of an organization. The article outlines possible features of an improved management and corporate reporting model. In order to objectively measure the productivity and efficiency of the entire enterprise, the article outlines how total factor productivity can be assessed in organizations as a means to better understand organizational performance.
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Jason Hurwitz, Stephen Lines, Bill Montgomery and Jeffrey Schmidt
Intangible assets have grown in size and importance to individual firms and to the economy as a whole. Many have examined and written about ways to value the intangible assets of…
Abstract
Intangible assets have grown in size and importance to individual firms and to the economy as a whole. Many have examined and written about ways to value the intangible assets of firms and the overall economy. Professor Baruch Lev of New York University has developed an approach to measure intangibles performance for any company, or division of a company, that uses GAAP financial reporting and that has publicly traded equity. Professor Lev has also established how intangibles performance is linked to stock returns. The collaborative research of the co‐authors has extended this linkage by identifying certain management practices as drivers of intangibles performance. The culmination of this work is a breakthrough – for the first time, specific management practices can be linked to stock returns.
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Arthur DeTore, Mark Clare and James Weide
This case study of the valuation of intangible assets compares an internally generated estimate of discounted cash flow (DCF) with an estimate of knowledge capital (KC). It…
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This case study of the valuation of intangible assets compares an internally generated estimate of discounted cash flow (DCF) with an estimate of knowledge capital (KC). It describes Lincoln Re’s mortality research and development (R&D) capability, the knowledge management (KM) strategies used to leverage it and the management decisions that were made to create economic value. This paper reviews a theory of KM and a valuation approach with DCF measures. The decisions to invest in R&D and the Lincoln Mortality System, an expert system for product development, produced a 23.9 percent growth in DCF and created substantial value for Lincoln Re. Using Baruch Lev’s approach to KC, it is suggested that 0.45 percent is a good working figure for the return on asset for life insurance firms versus the previously published 10.5 percent due to the overwhelming percentage of financial assets on the balance sheet of financial companies and the fact that the return on financial assets is imbedded in product pricing. The correlation between DCF and KC measures is approximated by a DCF/comprehensive value ratio and the results show 70‐80 percent correlation at the enterprise, division and asset levels.
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This paper seeks to present the positions and conclusions of scholars to support a proposition that the asset approach to human resource accounting has failed.
Abstract
Purpose
This paper seeks to present the positions and conclusions of scholars to support a proposition that the asset approach to human resource accounting has failed.
Design/methodology/approach
Reviews the history of human asset accounting.
Findings
The paper offers an alternative “liability approach” to account for and report human resources.
Originality/value
The paper provides an argument and rationale to demonstrate that a liability paradigm would be compatible with normal accounting and reporting procedures.
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This study aims to investigate the accounting role’s deficiencies in managers’ decision-making processes.
Abstract
Purpose
This study aims to investigate the accounting role’s deficiencies in managers’ decision-making processes.
Design/methodology/approach
The current research applies a critical review method, which along with a deductive approach – based on a library review of existing sources – examines the underlying causes for the deficiencies of accounting role in the decision-making process of managers; moreover, based on the results obtained, the current study proposes a structural model to explain the issue.
Findings
The results exhibit the inadequacies of the accounting role in the decision-making process of managers into three sections: “dilution of financial reporting information content,” “malpractice of accounting information providers” and “managers’ unwillingness to use accounting information.”
Practical implications
This research provides a new perspective on critical accounting studies for the accounting profession, policymakers and managers and invites them to examine the roles of accounting information in more depth and breadth.
Originality/value
This article is the first study that critically expounds upon the literature on the deficiencies of accounting role in the decision-making process of managers and presents these deficiencies in the form of a structural model from three different perspectives.
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Robert L. Bunting (2005), the newly installed chairman of the American Institute of Certified Public Accountants (AICPA), recently remarked as follows:A great profession takes a…
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Robert L. Bunting (2005), the newly installed chairman of the American Institute of Certified Public Accountants (AICPA), recently remarked as follows:A great profession takes a long view. Its members inherit a legacy from the past, derive benefit from it, build on it and pass it on to the next generation even stronger than they found it. A great profession occupies a position of trust. When we review our assets, none is as important as our position of trust in the economic marketplace. A great profession builds bridges of communication and credibility with key stakeholders. These include the regulators and government bodies who rely on our skills and services to advance the public interest. A great profession plays a vital role in the health of our economy and our society. And a great profession renews itself. It does so by attracting a continual flow of talented new professionals. And it renews itself by carving new roads that can accommodate the needs of future travelers.
A. Seetharaman, Hadi Helmi Bin Zaini Sooria and A.S. Saravanan
Claims the greatest challenge facing the accounting profession is understanding the huge difference between its balance sheet and market valuation. This gap represents the core…
Abstract
Claims the greatest challenge facing the accounting profession is understanding the huge difference between its balance sheet and market valuation. This gap represents the core value of the company – its intellectual capital represented by brands, products, competitive advantage, patents, trade marks, customer relationships, R&D, human capital etc. The present financial accounting framework is criticised, especially in the USA and Europe, as inadequate and failing to communicate the most important assets and resources of today’s business, known as intangible assets or intellectual capital. As a result, there is a huge value gap and distortions between a business entity value as reported in the financial statements with the value put by investors on the stock market or even in merger and acquisitions cases. In the new knowledge economy (k‐economy), knowledge rather than physical assets drives innovations, revenue and profits growth, and nurtures new competitive advantages. Looks at the challenges encountered by accounting and where it is heading in the k‐economy environment.
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Bernard Marr, Dina Gray and Andy Neely
It is now generally believed, within the current literature, that an academic and practitioner focus on intellectual capital (IC) is important and that the measurement of a…
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It is now generally believed, within the current literature, that an academic and practitioner focus on intellectual capital (IC) is important and that the measurement of a company's intangibles provides real business benefits. However, it is essential for researchers in the field of IC to be able to justify these newly formed theoretical assumptions through rigorous empirical testing. This paper reports on the results of a systematic investigation into the theoretical underpinnings of why firms measure their IC and existing empirical evidence that helps to prove that the measurement of IC is really worthwhile. The paper then critically reviews the state of research evidence in the field. The major finding of this paper is that the majority of research within the IC measurement field is at the theory building stage, and that very little of the proposed measurement theory has yet been fully tested. This paper outlines possible avenues scholars might pursue in order to further the development of the IC measurement field.
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This paper focuses on current efforts to demonstrate the value of knowledge in organisations with reference to activities and systems for the measurement of intangibles. These…
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This paper focuses on current efforts to demonstrate the value of knowledge in organisations with reference to activities and systems for the measurement of intangibles. These efforts stem largely from widespread dissatisfaction with the manner in which traditional accounting methods treat intangibles. The wider context is that of national and international governments and organisations striving to master the drivers of knowledge‐based change by involvement in research projects, in conferences, in attempts to find new means of representing intangibles in standard industrial classifications and national accounts and in standards setting for knowledge management. Organisationally this is manifest in proprietary systems for measuring intangibles, many of which suffer the handicap of being overly‐focused on single organisations, with the metrics process continuing to lack critical mass. Although such efforts are necessary and will continue, they are most likely to succeed where they relate to mainstream business activities and operate not so much as metrics as indicators.
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The primary objective of this paper is to study the relationship between voluntary earnings disclosures and a combined set of corporate governance attributes in France. We use…
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The primary objective of this paper is to study the relationship between voluntary earnings disclosures and a combined set of corporate governance attributes in France. We use binary logit models to check our hypotheses. The results indicate significant negative associations between voluntary earnings disclosures and ownership concentration, and between voluntary earnings disclosures and a unitary leadership structure. The results also show that French firms providing voluntary earnings disclosures are more likely to have higher foreign institutional investor's ownership, and to offer stock option plans for their executives. These findings shed the light on the corporate governance features that enhance incentives for voluntary earnings disclosures and those affecting these incentives under high ownership concentration.