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The Limitations of Financial Reporting on Innovation and Its Value-Relevance for the Investor's Decision-Making Process

The Limitations of Financial Reporting on Innovation and Its Value-Relevance for the Investor's Decision-Making Process

Francisco Leote, Ana Damião
Copyright: © 2019 |Pages: 29
ISBN13: 9781522584797|ISBN10: 152258479X|EISBN13: 9781522584803
DOI: 10.4018/978-1-5225-8479-7.ch015
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MLA

Leote, Francisco, and Ana Damião. "The Limitations of Financial Reporting on Innovation and Its Value-Relevance for the Investor's Decision-Making Process." Handbook of Research on Entrepreneurship, Innovation, and Internationalization, edited by Nuno Miguel Teixeira, et al., IGI Global, 2019, pp. 390-418. https://doi.org/10.4018/978-1-5225-8479-7.ch015

APA

Leote, F. & Damião, A. (2019). The Limitations of Financial Reporting on Innovation and Its Value-Relevance for the Investor's Decision-Making Process. In N. Teixeira, T. Costa, & I. Lisboa (Eds.), Handbook of Research on Entrepreneurship, Innovation, and Internationalization (pp. 390-418). IGI Global. https://doi.org/10.4018/978-1-5225-8479-7.ch015

Chicago

Leote, Francisco, and Ana Damião. "The Limitations of Financial Reporting on Innovation and Its Value-Relevance for the Investor's Decision-Making Process." In Handbook of Research on Entrepreneurship, Innovation, and Internationalization, edited by Nuno Miguel Teixeira, Teresa Gomes da Costa, and Inês Margarida Lisboa, 390-418. Hershey, PA: IGI Global, 2019. https://doi.org/10.4018/978-1-5225-8479-7.ch015

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Abstract

This chapter aims to present some limitations of financial reporting on innovation with an impact on the investor's decision-making process. In order to do so, the authors show how accounting recognizes and measures innovation factors: the intangibles. Based on the literature, the authors discuss how the value relevance of financial reporting on innovation is conditioned by non-financial factors. The impacts of the adoption of IFRSs, the effect of the industry sectors and the effect of the individual characteristics of the different countries on the value relevance of the intangible assets are analyzed. The literature suggests a decrease in the value relevance of financial statements due to the manner in which intangibles are recognized and measured in accounting. However, financial reporting on innovation is value relevant to the investor's decision-making and is conditioned by non-financial factors. Value relevance differs among different industry sectors, between different countries and is conditioned by the accounting systems used in the preparation of the financial information.

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