Voluntary Intellectual Capital Disclosure and Earnings Forecast in Indonesia-Malaysia-Thailand Growth Triangle’s Pharmaceuticals Sector

Hatane, Saarce Elsye and DIANDRA, JEFFERSON CLARENZO and Tarigan, Josua and Jie, Ferry (2021) Voluntary Intellectual Capital Disclosure and Earnings Forecast in Indonesia-Malaysia-Thailand Growth Triangle’s Pharmaceuticals Sector. [UNSPECIFIED]

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Abstract

Purpose This study examines the role of intellectual capital disclosure (ICD) on earnings forecasting by analysts in the pharmaceutical industry in emerging countries, particularly in Indonesia, Malaysia and Thailand. This study specifically examines the role of each component of the ICD on analysts forecasts, which consists of errors of forecasted earnings, the standard deviation of forecasted earnings and analyst recommendations. Design/methodology/approach Panel data analysis is conducted using a sample of 17 companies from pharmaceuticals industries in Indonesia, Malaysia, Thailand – Growth Triangle (IMT-GT), which are listed in the Indonesia Stock Exchange (IDX), Malaysia Stock Exchange (MYX) and Stock Exchange of Thailand (SET) from 2010 to 2017. Secondary data is obtained from Bloomberg and Annual report, where they are being analyzed to measure the ICD and gather the control variables. Findings The results indicate that the three components of ICD, namely human capital disclosure (HCD), structural capital disclosure (SCD) and relational capital disclosure (RCD), insignificantly influence average analysts consensus recommendation and analysts earnings forecast dispersion. However, the findings show a significant negative influence of relational capital disclosure (RCD) on analysts earnings forecast error. In contrast, HCD and SCD have an insignificant impact. Practical implications Transparency in disclosing activities related to external parties is essential for the pharmaceutical industry. It is found that relational capital disclosure is the only ICD indicator that can strengthen analysts profit predictions. Transparency about company activities in maintaining customer satisfaction and activities related to strategic alliances with other organizations are two critical things that can accommodate the accuracy of earnings forecasting from analysts in pharmaceutical companies. Originality/value This study contributes to ICD-related research by discussing the financial analysts response to this voluntary disclosure in the pharmaceutical industry, particularly in Indonesia, Malaysia and Thailand. The selected observation period is seven years, starting one year after the global financial crisis. The results showed that the disclosure of IC is not an exciting thing for financial analysts. In forecasting current earnings, financial analysts are more interested in errors than the previous years estimates.

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