The Relevance of Intangibles Disclosure for Market Risk : An Exploratory Study of US Healthcare and Pharmaceutical Industry

The healthcare and pharmaceutical industry in the United States has its primary resources tied up in the form of intangibles. Therefore, the main risk factors of such firms are directly associated with the management of such idiosyncratic resources. Reporting on intangibles has always been controversial because of the persistent conceptual and regulatory challenges, yet voluntary disclosures represent a non-negligible portion of the annual report of such firms. This study explores the reporting environment of intangibles for firms belonging to the healthcare and pharmaceutical industry in the US and analyzes whether these non-financial disclosures on the annual report have an impact on those companies’ market risk. The evidence suggests that disclosure of intangibles vary considerably in the content, and that this type of information does not have an impact on the market risk of healthcare and pharmaceutical firms. However, R&D intensity clearly has a statistically significant effect on the market risk. These results are consistent with the previous findings of Lev and Zarowin (1999), who found that the usefulness of earnings information in annual reports has been deteriorating over the years.