Abstract

This paper follows an empirical approach to test the relationship between degree of intangible assets and profitability. It is important for shareholders to understand which critical factors influence firms’ financial performance. All the data are based on 17 listed telecommunication firms’ financial statements in China from 2014 to 2016. This study gives empirical evidence that intangible assets’ ratios have positive and significant effect on firms’ financial performance, measured by Return on Assets (ROA). As a result, the central tendency of samples’ intangible assets ratios would be a reference intangible assets ratio range for other telecommunication firms. The limitation in measuring intangible assets is the difference between intangible assets reported in financial statements and measured by the market value minus its book value. Although in this study, the intangible assets follow current Chinese accounting standards rules, the difference does not influence the result.

Key words: Intangible assets, financial performance, intangible assets ratio, return on assets (ROA).