R&D reporting practice: case of a developing economy

Abstract

Purpose

The purpose of this paper is to provide empirical evidence on the level of research and development (R&D) reporting practices by public listed companies (PLC) in Malaysia. R&D activities initiated by a firm are an important signal for a firm's potential future value‐creation. Due to the uncertain nature of the outcomes of R&D, many companies report R&D costs as an expense. These costs are immediately written off from the balance sheet. However, this practice underestimates the intellectual capital accumulation of the firm and does not accurately capture its equity strength.

Design/methodology/approach

The PROBIT model was used to empirically evaluate the R&D reporting practices among PLCs in Malaysia. The impact of total assets, and profit before tax on the R&D reporting patterns among Malaysian PLCs were also investigated. This study was conducted on 230 PLCs from the Main Board of Bursa Malaysia (previously known as the Kuala Lumpur Stock Exchange) for the 2004 reporting year.

Findings

Empirical results showed that companies in the consumer sector have a higher probability of reporting R&D costs as an intangible asset (investment) than companies in the industrial sector. Companies with higher total assets also have a higher probability of reporting R&D costs as intangible assets.

Research limitations/implications

This study is only for a specific year (i.e. 2004) and is limited to listed companies in the Main Board of Bursa Malaysia.

Practical implications

Recommendations are made for appropriate strategies to increase the probability of industrial companies reporting R&D costs as intangible assets in their annual reports, thereby raising the future equity of the firm.

Originality/value

This study employs an innovative approach using the PROBIT model to measure the level of reporting R&D by PLCs.

Citation

Zainol, A., Nair, M. and Kasipillai, J. (2008), "R&D reporting practice: case of a developing economy", Journal of Intellectual Capital, Vol. 9 No. 1, pp. 122-132. https://doi.org/10.1108/14691930810845849