Value relevance of intangible assets before and after FRS 138 adoptions: Evidence from Malaysia

Abstract

The economic environment has changed from the era of agriculture, industrial and now to an information era. In this information era, intangible assets dominate the environment compared to during industrial era that was mainly dominated by tangible assets. Intangible asset plays an important role in today's economy with the shift from being an industrialised economy to a high-tech and service-oriented. In Malaysian capital market, there is an upward trend of intangible assets development. Hence, the question of whether the value relevance of intangible assets is properly reflected in financial statements arises. The objective of this study is to examine the value relevance of intangible assets in Malaysia before and after the adoption of FRS 138. This study used a sample of 113 public listed companies from four main sectors namely Industrial Product, Trading services, Consumer Product and Technology. The period under study was divided into two, that is, pre adoption period (2002-2005) and post adoption period (2008-2011) to observe if there were any improvements on the value relevance of intangible assets after the adoption of International Financial Reporting Standards (IFRS). The data was analysed to examine the value relevance of intangible assets in Malaysia before and after the adoption of FRS 138. The finding of this study suggests that intangible assets are value relevant in the pre adoption period but are not value relevant in the post adoption period. This study may contribute to the existing literature on the economic consequences of adopting IFRS and also preliminary indication of the impact of FRS 138 adoption.