This paper aims to assess to what extent intellectual capital is revealed once a company is acquired.
Abstract
Purpose
This paper aims to assess to what extent intellectual capital is revealed once a company is acquired.
Design/methodology/approach
The research question was approached by analyzing official accounts of companies, like annual reports and documents provided to stock exchange authorities before and after the acquisition. In its purchase price allocation the acquiring company is providing insight in the total value of the company acquired.
Findings
The mean total value of the companies studied increases approximately six fold on acquisition. This increase is mainly due to the increase in intangible assets (including goodwill), which substantially overlap with intellectual capital. The intangible assets specified are mostly connected to rights‐related and technology‐related items, while goodwill shows more “bias” to expertise and customer‐related items. Thus it is hypothesized that a substantial part of the intellectual capital of the company acquired is revealed in the official accounts of the acquiring company.
Research limitations/implications
This study is limited to companies primarily in the pharmaceutical sector. The situation with respect to intangible assets may deviate from the situation in other industrial sectors. Another limitation is the restriction to public companies with respect to the acquiring party because of the information requirements imposed by the authorities. Further, this study was restricted in time to the last seven years in order to have a group of acquisition situations for which similar recent accounting guidelines apply.
Practical implications
This line of research could have practical implications for future valuation policies in acquisition situations and for intellectual capital valuation strategies.
Originality/value
The paper is a quantitative evaluation of intellectual capital in mergers and acquisitions based on formal accounting records.
Details
Keywords
The purpose of this research is to assess the visibility of intangible assets on the balance‐sheet of pharmaceutical companies. Further, how these assets overlap with intellectual…
Abstract
Purpose
The purpose of this research is to assess the visibility of intangible assets on the balance‐sheet of pharmaceutical companies. Further, how these assets overlap with intellectual capital and whether a relation can be established between intangible assets and company performance.
Design/methodology/approach
Intangible assets reporting practices of a group of 52 globally operating pharmaceutical companies are analysed. These assets are related to intellectual capital definitions and company performance.
Findings
Results indicate that the majority of companies are specifying intangible assets and that a considerable overlap occurs with intellectual capital. Intangible assets may constitute substantially to the companies' assets. However, clear relations of intangible assets with company performance could not be established.
Practical implications
Imperfections in the reporting of intangible assets are observed. These are the non‐uniformity of generally agreed accounting principles and practice around the world, the specification of goodwill and the position of R&D. A number of proposals are put forward to improve the visibility of intangible assets and to bring these in line with intellectual capital definitions.
Originality/value
The value of the paper can be found in the approach to fulfil the ideal of intellectual capital valuation through the more practical way of intangible asset specification on the balance‐sheet. For the group of companies studied, this paper assesses the situation in 2003 and the way ahead to further improvement.