The impact of intangible intensity on relevance of R&D information: evidence from India

Pooja Kumari and Chandra Sekhar Mishra

Journal of Applied Accounting Research, 2021, vol. 22, issue 5, 845-868

Abstract: Purpose - This paper aims to examine the impact of the intangible intensity of the firm on the relevance of research and development (R&D) information to determine equity values in India. Additionally, the study compares the association of input information on R&D investment (the reported R&D cost) and output information on R&D investment (patent count) with equity values. Further, the study also examines the operational nature of the firm and patent count, which is the better proxy to measure the intangible intensity of the firm. Design/methodology/approach - The authors compared the explanatory power of R&D information between intangible and non-intangible intensive firms. To estimate the value relevance of R&D information, the authors followed the statistical model based on the theoretical framework of the residual income model. Findings - The results indicate that there is a significant moderating impact of the intangible intensity of the firm on the relevance of R&D information to determine equity values in India over the 25 years study period (from 1991 to 2016). Further, in India, the study finds that the input information of R&D outlay is more relevant than output information on R&D outlay to determine equity values, irrespective of the proxy measure of intangible intensity. Moreover, the study finds that the operational nature of the firm is a better proxy of the intangible intensity of the firm compared to patent counts. Research limitations/implications - In this study, pooled cross-sectional data were used for analysis. In the future, longitudinal and panel data can be used for more insightful results. Practical implications - The findings of the study provide direction to investors and creditors to find the intrinsic value of the investments in internally developed intangible assets, which will reduce the asymmetry between the market value and accounting value of equity. Originality/value - The paper offers insights into the impact of intangible intensity on the relevance quality of R&D information in an emerging country.

Keywords: R&D investment; Intangible intensity; Emerging economy; Value relevance (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jaarpp:jaar-06-2020-0120

DOI: 10.1108/JAAR-06-2020-0120

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