Intangible assets and value relevance: Evidence from the Portuguese stock exchange Lídia Oliveira a, * , Lúcia Lima Rodrigues a , Russell Craig b a University of Minho, School of Economics and Management, Campus de Gualtar, 4710-057 Braga, Portugal b University of Canterbury, Department of Accounting and Information Systems, Private Bag 4800, Christchurch 8140, New Zealand article info Article history: Received 18 November 2009 Received in revised form 25 June 2010 Accepted 28 June 2010 Keywords: Financial reporting Value relevance Intangibles Portugal Accounting standards Listed companies abstract We assess the value relevance of the amounts for identifiable intangible assets and goodwill reported in the financial statements of all non-finance companies listed on the main market of the Portuguese Stock Exchange from 1998 to 2008. Additionally, we use panel data to explore the impact on value relevance of Portugal’s formal adoption of International Accounting Standards [IAS] and International Financial Reporting Standards [IFRS] in 2005. A distinctive feature of the accounting by our sample companies is that when they adopted IAS 38 and IFRS 3 in 2005, they were no longer required to recognise some intangible assets (such as start-up costs and research expenditures) and were no longer required to amortise goodwill. We find that net earnings, reported goodwill and other intangible assets are highly significantly associated with stock price. However, whereas earnings are related positively to stock prices when Portuguese Generally Accepted Accounting Principles (GAAP) were applied prior to 2005, the value relevance of earnings appears to have declined after the adoption of IAS/IFRS in 2005. Although the change to IAS/IFRS had no impact on the value relevance of identifiable intangibles as a whole, the evidence suggests that there was a positive effect on the value relevance of goodwill. When the subclasses of identifiable intangible assets are considered, we found evidence of an increase in value relevance of goodwill, other intangible assets, and research and development expenditures. Ó 2010 Elsevier Ltd. All rights reserved. 1. Introduction The widespread adoption of new information technologies has led to intangible assets being a major determinant of corporate value (Lev, 2001). Many questions have been raised about the value relevance of accounting measures that arise in accounting for intangibles (Francis & Schipper, 1999; Lev, 2001; Lev & Zarowin, 1999). Several studies have concluded that the value relevance of accounting information has decreased over recent decades, principally because of an increase of unre- ported intangible assets (e.g., Brown, Lo, & Lys, 1999; Lev & Zarowin, 1999). However, the corpus of empirical studies reports mixed results about whether financial reports are losing relevance (see Brown et al., 1999; Collins, Maydew, & Weiss, 1997; Francis & Schipper, 1999; Harris, Lang, & Möller, 1994; Joos & Lang, 1994; Lev & Zarowin, 1999). The mixed conclusions about the propensity of earnings and book equity values to reflect value-relevant information is unsurprising. The literature shows that the financial environments of Continental European countries, traditionally charac- terised as bank-based systems, have converged towards market-oriented ones. Consequently, national accounting systems have changed also. A major step was the application of International Accounting Standards [IAS] and International Financial * Corresponding author. E-mail addresses: lidiaoliv@eeg.uminho.pt (L. Oliveira), lrodrigues@eeg.uminho.pt (L.L. Rodrigues), russell.craig@canterbury.ac.nz (R. Craig). Contents lists available at ScienceDirect The British Accounting Review journal homepage: www.elsevier.com/locate/bar 0890-8389/$ – see front matter Ó 2010 Elsevier Ltd. All rights reserved. doi:10.1016/j.bar.2010.08.001 The British Accounting Review 42 (2010) 241–252