No. 65: The pricing and cash flow profile of acquired intangibles

This study investigates the value relevance and cash flow forecasting ability of acquired intangible assets beyond the acquisition date using a comprehensive sample for 3,859 publicly listed US-firms from 2002 to 2021. Our dataset enables us to classify acquired intangible assets by economic lifetime (i.e., definite vs indefinite useful lives) and by asset type (tech-, customer-, contract-, and marketing-intangible assets), thereby allowing us to test their relevance for equity pricing and cash flow prediction. We predict and find positive associations for most intangible assets, although the degrees of economic significance vary. Definite-lived intangible assets exhibit greater value relevance and stronger cash flow forecasting relevance than both indefinite intangible assets and goodwill, with goodwill demonstrating higher value relevance and forecasting ability than indefinite-lived intangibles. These findings highlight substantial differences in the information content conveyed by various asset types compared to goodwill. Technology intangibles emerge as particularly important, exhibiting the largest coefficients in both valuation and cash flow forecasting models. These findings suggest that most acquired intangible assets convey distinct, economically meaningful information about future performance that differs fundamentally from goodwill. The results have important implications for investors’ asset valuation decisions and provide timely evidence for standard setters considering proposals to subsume various intangible assets into goodwill.