Value Relevance of Intangible Assets in Indian Pharmaceutical Industry: A Difference-in-difference Approach

Abstract

This study attempts to investigate the value relevance of intangible assets reported in the financial statements of pharmaceutical companies listed on the BSE between 2011 and 2022. We investigate using panel data how intangible asset reporting, with the adoption of Indian Accounting Standards/International Financial Reporting Standards (IFRS) by Indian pharmaceutical firms, affects the market value of their shares. The unbalanced panel data set of 1,009 firm-year observations are used for analysis. Closing prices are taken as a proxy for firm value, gross intangible assets are the primary independent variable, while Earnings per share, net worth, cash flow, book value, firm size and market-to-book value, firm and year dummies are used as control variables. The fixed-effect model and difference-in-difference estimation are used for empirically investigating the linkage. Additionally, endogeneity issues are addressed, and robustness checks are done using various econometric tests. Based on empirical investigation, we discover that although value relevance of intangible assets has decreased in the post-IFRS period relative to the pre-IFRS, it still holds significance in forecasting the market value of the shares. The results will help policymakers evaluate the benefits and drawbacks of establishing accounting standards by adding to the body of knowledge already available on the value relevance of gross intangible accounting information.