THE EFFECT OF INTANGIBLE ASSETS ON THE IT CRISIS

Abstract

The fair valuation of a company has been questioned for many years. It becomes even more challenging when it is the IT companies to deal with. Reasons behind this problem stem from the valuation of value creating factors of intangible assets. The most current example that showed the need and importance of a solution to this issue is the IT Crisis. In this thesis, we focus on the effect the value creating intangible assets had on the IT Crisis, which we examined between 1997 and 2001. We identify the framework of a crisis followed by the concepts of intangible assets. The changes that occurred during the IT Crisis and whether these changes affected the IT Crisis are discussed. There are two kinds of intangibles that have been found, which consist of reported and unreported intangibles. The interesting fact is that there is value attached to intangibles. Moreover, there are still no generally accepted value measurement methods and accounting rules for some intangible assets. We will introduce three Swedish IT companies, which are listed in the Attract-40 List of the Stockholm Stock Exchange and base part of our analysis on the ‘Four Resources of Categories of a Firm’ by Barney (1997). These companies will be looked upon based on their intangible assets, reported and unreported, and the changes in their value during the IT Crisis. Our findings indicate that the value of intangible assets was set too high. As a matter of fact, as long as the accounting principles do not change, one can never value those intangibles appropriately.