Intangibles and management earnings forecasts

Abstract

We investigate how the accounting treatment of intangible assets on managers’ likelihood of issuing voluntary earnings guidance (MEF). We find that unrecognized intangibles (immediately expensed) are negatively associated with MEF issuance, while recognized intangibles (capitalized) show a positive association. These findings hold across various factors such as analysts’ coverage, industry type and for a subsample that excludes software firms permitted to capitalize software development costs under SFAS No. 86. In additional, we investigate the cross-sectional determinants of MEF issuance based on the characteristics of firm intangibility. We find a significant increase in the likelihood of MEF issuance for higher unrecognized intangibles with greater earnings uncertainty. This suggests that managers may prioritize delivering value-relevant information to market participants to alleviate uncertainty.