A study of value-relevance and reliability of intangible assets: What do we know from the restaurant industry?

Despite the importance of intangible assets in firm valuation, the value-relevance and reliability of intangibles remain unclear. Specifically, intangible assets are critically important to restaurant firms because of the intangible nature of their core services. Thus, this study examined the value-relevance and reliability of intangible assets in the restaurant industry. The results of this study confirmed that goodwill and identifiable intangible assets had significant value-relevance and reliability in association with firm value creation. The results also suggested that intangible assets are significantly related to restaurant firm value, implying that restaurant investors can rely on the intangible information on balance sheets when considering future investments. However, this study found that franchising has a positive moderating effect on the relationship between goodwill and market-based/accounting-based firm value measures, but it does not moderate the relationship between identifiable intangibles and restaurant firm value. This means that the value created by franchising is not fully reflected in the valuation of goodwill, while identifiable intangibles are fairly well valued or at least are not closely related to the value created by franchising. Consequently, the value relevance and reliability of non-franchise restaurants were confirmed. In contrast, although the value reliability of franchise restaurants was confirmed, the value relevance of franchise restaurants was not fully supported.