Factors influencing the identification and valuation of intangible assets in business combinations among Finnish listed companies 2017-2023

Abstract

The purpose of this thesis is to examine the factors that influence the recognition of intangible assets in mergers and acquisitions exercised by Finnish listed companies. The study is conducted from an IFRS perspective, meaning that the mergers and acquisitions being analysed are those defined as business combinations under IFRS 3, and the recognised intangible assets comply with the criteria set out in IAS 38. This study also examines the quality of IFRS 3 note disclosures.

Previous studies indicate that there are deficiencies in the identification and valuation of intangible assets, including in recognition, valuation and disclosure requirements. Intangible assets are increasingly significant to companies’ operations, making it important to identify their correct accounting treatment. This applies to Finnish companies as well, and no such study has been conducted before using Finnish data.

The sample of the data comprises business combinations made by Finnish listed companies under IFRS 3 between 2017 and 2023. A total of 203 business combinations is examined. In addition to the data, discussions with industry experts were held to support the findings based on the data. According to the data and expert comments, Finnish companies identify intangible assets in less than 42 percent of all transactions, which suggests that they have either been deliberately or unknowingly overlooked, leading to the recognition of more goodwill instead.

The study suggests that the reasons for this phenomenon include the difficulty of valuation, lack of expertise, and management incentives. The researcher also found a connection between the quality of reporting: the lower the quality of reporting, the fewer intangible assets are recognised. Furthermore, the study revealed that the valuation of intangible assets is also used as a form of leeway by management when conducting purchase price allocation and determining goodwill.