Sunarti Halid¹, Amizahanum Adam¹ Marina Ibrahim¹, Masetah Ahmad Tarmizi¹, Prof. Dr. Muhd Kamil Ibrahim^2
1Faculty of Accountancy, Universiti Teknologi MARA Cawangan Tapah, Perak
²Universiti Kuala Lumpur

ABSTRACT

Research and Development (hereafter R&D) is an expensive activity as it requires an investment of a certain amount of capital with the belief that they would result in some increased benefits in the future. Traditionally, firms have supported R&D due to technological improvements that are made possible by innovation which allows for better productivity, greater markets success and compliance to regulatory demands. Companies expect that the investment would create some values to them. In relation to this, the major aim of this study is to understand and acknowledge the value relevance of R&D in market valuation. The study only focuses on listed companies in Malaysia for the year 2000 until 2012. This study empirically investigated the association between R&D information in determining and explaining the market value. The study identifies the relationship between R&D and all other assets. Furthermore, the study examined the relationship between R&D and the sign of earnings items. An equity valuation model based on the modified balance sheet identity was used to permit R&D and other assets to have separate empirical coefficient values. This study found weak empirical support at best for the value relevance of R&D at the firm level. However, the market has taken into consideration the Book Value of Net Asset (BVNA) in determining the firm’s equity value as compared to R&D. The results also indicated that the market’s valuation of R&D is expected to be priced differently from other assets during the period of study. In addition, our results provided evidence that there is no significant relationship between R&D information and the sign of earnings items.

Keywords: Book Value of Net Asset, R&D Information, Market Value, Value Relevance