Intellectual capital reporting among large Malaysian companies and their determinants

In this new economy, intellectual capital (IC) plays an important role compared to the physical assets in achieving a company’s value and success. This study examines the IC disclosure practices in the 2006 annual reports of the 70 largest Malaysian companies listed on Bursa Malaysia. IC disclosures were captured using content analysis, and an ‘Operational Definition of IC’ was used to measure the extent of IC reporting. The results indicated that the sampled companies provided a generous quantity of IC information. However, the inconsistency in the application of content analysis, as well as an absence of specific guidelines on IC, had led to substantive difference in IC reporting practices. This study also examines the possible determinants of IC disclosure practices from three perspectives: IC value in a company, corporate governance structure and company characteristics. The results of the regression analyses based on the four measures of IC disclosure, i.e. total IC, total human capital, total structural capital, and total relational capital, indicated significant associations with certain variables under these three perspectives. These findings offer support for the proposition that Malaysian companies disclose their IC information to legitimise their activities and performance, since management considers these information as part of their value creation process and is considered as value relevant information to their stakeholders. This research also provides evidence that there is a need to have a guideline (IC disclosure index), which can be used as a basis for IC reporting framework. A set of guidelines for companies in measuring and reporting of IC would be advantageous to both preparers and users of financial information. Such practices would enhance the consistency of IC disclosure

Proprietary costs of intellectual capital reporting: Malaysian evidence

Purpose – The purpose of this paper is to examine the relationship between intellectual capital (IC) performance (value-added intellectual coefficient (VAIC)) and company characteristics with IC disclosure (ICD) in Malaysian listed companies. Design/methodology/approach – Sample of the study is 68 biggest Malaysian companies listed in Malaysian Stock Exchange based on market capitalization in year 2006.The paper follows the classification of ICD by Huang et al.(2007), with three broad IC categories in 45 items.Content analysis was used to collect the IC information from the annual reports.Regression analysis was conducted for VAIC and its components.Log linear analysis was also conducted to cater the possible miss pecification in the model.Findings – Results of the study show that VAIC is negatively related to ICD. Further classification of VAIC shows that intellectual capital efficiency and human capital efficiency are negatively related to ICD whilst structural capital efficiency is not related to ICD. Company size and leverage are found to be positively related to ICD.Research limitations/implications – Negative association between VAIC and ICD suggests that companies reduce ICD for competitive advantage reason which supports the proprietary cost theory. The findings of the study may provide some evidence to regulators to enhance the reporting practices of IC for the benefits of users of financial reporting in making relevant decisions.The focus should be given on the reporting of human capital items.Originality/value – This is the first paper to use IC framework by Huang et al.(2007). Consistency of findings with other studies using different IC framework can be compared for the choice of IC framework in future studies

Proprietary costs of intellectual capital reporting: Malaysian evidence

Purpose– The purpose of this paper is to examine the relationship between intellectual capital (IC) performance (value-added intellectual coefficient (VAIC)) and company characteristics with IC disclosure (ICD) in Malaysian listed companies. Design/methodology/approach– Sample of the study is 68 biggest Malaysian companies listed in Malaysian Stock Exchange based on market capitalization in year 2006.The paper follows the classification of ICD by Huang et al. (2007), with three broad IC categories in 45 items. Content analysis was used to collect the IC information from the annual reports.Regression analysis was conducted for VAIC and its components. Log linear analysis was also conducted to cater the possible misspecification in the model.Findings– Results of the study show that VAIC is negatively related to ICD. Further classification of VAIC shows that intellectual capital efficiency and human capital efficiency are negatively related to ICD whilst structural capital efficiency is not related to ICD. Company size and leverage are found to be positively related to ICD.Research limitations/implications– Negative association between VAIC and ICD suggests that companies reduce ICD for competitive advantage reason which supports the proprietary cost theory.The findings of the study may provide some evidence to regulators to enhance the reporting practices of IC for the benefits of users of financial reporting in making relevant decisions. The focus should be given on the reporting of human capital items.Originality/value– This is the first paper to use IC framework by Huang et al.(2007). Consistency of findings with other studies using different IC framework can be compared for the choice of IC framework in future studies

The timing of goodwill write-off: cases of initial overpayment

This paper explores types of accounting choice related to reporting goodwill impairment losses, if any, exercised by Malaysian listed firms after an implementation of IFRS 3. The study is carried out through an in-depth analysis of annual reports for fifteen firms over a number of years. The fifteen firms selected are those that have goodwill arising from business combinations in December 2006/7, reported goodwill impairment losses in the current year or the future year(s), and the goodwill represents 50% or more of the acquisition price. Results show that of the fifteen firms examined, eight firms appeared to exercise the accounting choice in the form of opportunistic timing in reporting the impairment losses. The study contributes to the accounting choice literature by providing evidence on the timing of goodwill impairment losses for goodwill that arose from an apparent overpayment made at the time of an acquisition of a subsidiary

Case study research report Tadika Bonda: Mothers great helpers

The case is about a start up kindergarten business handled by a group of young graduates from local universities in Malaysia.The business is based on friendship and trust and they face no real problems in carrying out their duties as managers and teachers for the children. In a short period of time, the business has grown and expanded to four branches. There is an urgent need for these young entrepreneurs to measure their business performance in order to stay valid and competitive.Students are expected to evaluate the financial and nonfinancial performance of Tadika Bonda using knowledge learned in basic accounting and entrepreneurship classes

Does intellectual capital add value to Malaysian companies?

In knowledge-based economy, intellectual capital (IC) plays an important role compared to the physical assets in achieving a company value and success.The ignorance of IC would result in management putting less attention on IC, and hence IC value added capabilities would not be fully exploited.The study aims to examine the relationship between IC performance (VAIC) and company characteristics with IC disclosure in the annual reports of 68 biggest Malaysian companies listed in Bursa Malaysia based on market capitalization in year 2006.The study follows the classification of IC disclosure (ICD) by Huang et al. (2007), with three broad IC categories in forty-five items. Content analysis was used to collect the IC related information.Other data are gathered from annual reports and datastream.Results show that VAIC is negatively related to IC disclosure.Further classification of VAIC shows that Intellectual Capital Efficiency (ICE) and Human Capital Efficiency (HSE) are negatively related to IC disclosure whilst Structural Capital Efficiency (SCE) is not related to IC disclosure.Negative association suggests that companies reduce intellectual capital disclosure for competitive advantage reason which supports the proprietary cost theory.Company size and leverage are found to be positively related to IC disclosure

R&D expenditures: Accounting choices and market price reactions

This paper examines the value relevance of R&D reporting among public listed companies in Malaysia for the years 2000 and 2001, subsequent to the introduction of FRS 109, Accounting for Research and Development (formerly known as MASB 4).FRS 109 states that a firm should expense its research costs and could capitalize the development cost if the latter is expected to bring future benefits.Otherwise, the development expenditure is to be expensed.Test results based on Ohlson’s (1995) valuation model shows that for capitalizers, the amount of R&D expenditure, either expensed or capitalized, influences the stock prices positively.As for the expensers, even though the amount expensed influences stock prices, this relationship is driven by outliers; when we dropped the outliers, the result is no longer significant.These results indicate that R&D activities of capitalizers are expected to bring future benefits and consequently lead to higher prices while the R&D activities of expensers are more difficult to evaluate given a small sample size and the presence of outliers

The value-relevance or R&D expenditure: Experience from Malaysia

This paper examines the value relevance of R&D reporting among public listed companies in Malaysia for the years 2000 and 2001, subsequent to the introduction of FRS 109, Accounting for Research and Development (formerly known as MASB4).FRS 109 states that a firm should expense its research costs and could capitalize the development cost if the latter is expected to bring future benefits. Otherwise, the development expenditure is to be expensed.Test results based on Ohlson's (1995) valuation model shows that for capitalizers, the amount of R&D expenditure, either expensed or capitalized, influences the stock prices positively.As for the expensers, even though the amount expensed influences stock prices, this relationship is driven by outliers; when we dropped the outliers, the result is no longer significant. These results indicate that R&D activities of capitalizers are expected to bring future benefits and consequently lead to higher prices while the R&D activities of expensers are more difficult to evaluate given a small sample size and the presence of outliers

Corporate governance and the extent of directors' remuneration disclosure

This study aims to investigate the extent of Malaysian directors’ remuneration disclosure in the annual reports. In addition, this research seeks to examine the relationship between corporate governance structure and the disclosure practices of directors’ remuneration. We measure the extent of directors’ remuneration disclosure by the following four measures – the disclosure of individual pay for each director, band of pay, linkage to performance, and components of pay. Drawing on agency theory, we expect that the extent of directors’ remuneration disclosure is positively associated with the independence of boards of directors, audit committees and remuneration committees. In addition, we expect an inverse relationship between directors’ remuneration disclosure and ownership structure. The annual reports of 376 companies listed on Bursa Malaysia are randomly selected and analyzed.The results reveal that most of the sampled firms communicate information about the directors’ pay in bands of RM50,000, together with the narration of linkages between the directors’ pay and performance in their annual reports.Not many companies disclose information about individual directors’ pay, or separately disclose the salary and bonus components.In addition, the regression results suggest that the independent of board of director and remuneration committee are associated with disclosure of directors’ pay bands.Bigger firms are more likely to communicate individual director’s pay, and disclose salary and bonus components separately in their annual reports.The findings have important implication in understanding the disclosure practices of companies in relation to the directors’ remuneration