Research and Development Reporting in Malaysia

In today's challenging business environment, companies not only spent on Research and Development (R&D) but also need to report their R&D activities adequately. This paper employs content analysis to examine R&D disclosures in the 2007/2008 annual reports of 140 listed companies in Malaysia. Content analysis is a quantitatively oriented technique which uses a standardised and defined unit of measurement and is appropriate for exploratory study. This paper examines both mandatory disclosures (compliance with FRS 138) and voluntary disclosures (non-compliance) of R&D. The mandatory disclosures were obtained from the financial statements and the notes to the accounts section. The voluntary disclosures were obtained from those outside the financial statements such as the chairman statements, operation reviews and director's reports. Despite the subjectivity of the coding process found in most 'content analysis' method, this study does provide insight into the R&D reporting practice in Malaysia. It was found that only 28% of the companies under review have reported R&D in the financial statements. With regards to the voluntary disclosures, 40% reported information on R&D activities beyond the mandatory disclosures. Seventeen companies (12%) supplied information on R&D voluntarily even though they have not reported any R&D expenditure in their financial statements. The findings imply that Malaysian companies did attempt to use voluntary disclosure to resolve R&D information asymmetry as companies reported their R&D activities on the various categories examined. Most R&D disclosures were devoted to the 'output category' comprising of product development achievement, potential or actual achievement and product timing. Different industries were found to report different aspects of R&D suggesting R&D to be industry-specific. The results suggest that there is a need to identify specific and key R&D information for external reporting to meet the increasing demand of quality information on R&D in aid of decision making.