The research design for our study is using the quantitative method. Bcox the majority of information needed for our research is derived from figures, numbers acquired from annual reports and formulas.
Population and sampling procedures
Non-probability sampling method which is judgment sampling. Judgment sampling is a form of purposive sampling whr the researcher's judgment is used in selecting the sample's elements.
We will analyze the annual reports of the companies from yearâ€¦ reason of the period is bcox the latest amendment on FRS
Population that we hav chosen in the research project consist of all companies listed in main boardâ€¦
Main board companies were chosen as our population bcox availability and credibility of data and their higher influence in Malaysia economy.
The followings samples selection criteria are set to ensure the completeness of data and accuracy of result:
must be a listed companry prior to year 2005.
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no changes in financial year end during 2005â€¦
must not be PN4 and PN 17 companies
Companies will be classified as PN 4 and PN 17 cmopanies when the external auditors hav expressed adverse or disclaimer opinion on their latest audited acc, facing inability to provide a solvency declaration through Practice Note 1/2001 or due to the suspension or ceased of all or a major part of its operations.
must not be investment holding companies, real estate investemnet holding companies and financial institutions bcox their nature of biz or operation is significantly diff from the other industries.
Must hav complete annual reports during the sample periods.
Data collection method
Will use secondary data which is annual reports collected from Osiris database. From annual reports, we will collect data on net sales, EBIT, EBITDA , mkt value, total assest, total debt, number of segments the firm diversifies. Share price based on the companies' financial year end will retrieved from Yahoo!Finance website; the number of outstanding shares will be retrieved from annual reports to compute market value of firm.
In annual report, look into segmented reporting section to identify the number of segments the company has and also to obtain the info on the segment sales, EBIT and asset.
SIC codes are for digit.. All companies have their own registered SIC code, so will classify into respective industries based on 10 industries provided in www.siccode.com(list of industries is attached in appendix).
Fan and Lang (2000) said that to capture the relatedness, if two industries do not share the same two-, three- or four-digit SIC code, they classify it as unrelated and vice versa. If all segments in a firm share the same 2-digit SIC codes, this firm will be classified as single-segmented firm; If a firm's segments do not share the same 2-digit SIC codes, this firm will be classified as multi-segmented firm.
Operationalisation and measurement
Determine whether CD will increase or decrease firm value, we apply method used by BERGER and OFEK (1995) to find the excess value for each firm in our sample. The definition of excess value is actual market value of the firm(measuered as mkt value of equity plus book value of debt) minus total imputed value of that firm's industrial segments measured as stand-alone entities. Next , compute the excess value for single-segmented firms to compare with multi=segmented firms in our analysis later. For a single - segmented firm, he imputed value for that one segment is equivalent to the imputed value of the whole firm.
Based on this method, signle-segmented firms within a particular industry are used as benchmark to compute an imputed value measure of the same industrial segment of a multi-segmented firm. We calculate the imputed value of each segment of a multi-segmentd firm by multiplying the median multiple of total capital to accounting item(assets, sales, or EBIT) of all signle-segmented firms in the same industry for that particular year with that segment's level of acc item(â€¦). We use acc item such as segment's salesâ€¦â€¦ calculate the sales multiplier, EBIT multiplier, and asset multiplier in order to calculate imputed values and subsequently firm's excess value. The sum of imputed values of a company's segments estimates the value of firm if all of its segments are operated as stand-alone biz.
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Marked to Standard
Natural logarithm is used to avoid bias that could arise with absolute value measurement scale.
Example, to compute excess value using the sales multiplier, we multiply the industry median multiple of capital-to-sales for the stand-alone firms in the segments' industry by the segments' sales to obtain imputed capital of the segment. We repeat this process for each of the firm's segments, and then sum to obtain the firm's imputed value. Finally, we find the fim's excess value by taking the natural logarithm of the raito of firm's total capital to total imputed value.
One additional issue that arises with EBIT measure is how to treat segments with negative EBITs whr multiplier approaches don not tyhpically assign negative imputed value to a firm's segment with negative earnings. We address this issue by replacing the EBIT multiplier imputed value with the segment's sales multiplier imputed value. As for the calculation of the median multiplier, negative EBIT segments are excluded in the calculation.
Finally , if there is a positivie excess value, it indcates that CD increase firm value as a whoel beyond that of their stand-alone counterparts. On the oteh hand , a negative dxcess value indicates that CD reduces firm value as a whooe.
Reason we use the theree multiplier approaches instead of just sales multiplier bcox there were some empirical evidence that showed that segmental reported sales were unreliable (BODNAR, TANG, & WEINTROP, 2003). Givoly, Hayn, and D'Souza(1993) assess the quality of segment reporting and concluded that imputing value directly from current profitability of segment would be more directly linked to firm's value compared to segmental reported sales and assets. Theoretical models of managerial disclosure decisions suggest that managers may hav incentives to misstate segment data to both providers of capital and product market competitors(BERGER & OFEK, 1995). Their ability to misstate depends on the discretion managers have to allocate dollars between segments. Since segment assets must be specifically identifiable with the segment for which they are reported, there is little discretion to misstate them. Managers do hav some ability to allocate sales,and greater discretion to allocate expenses, so EBIT multiplier ansd sales multiplier were more vulnerable to manipulation than imputing segment's value from asset multiplier. Therefore, we report results for all three multipliers to improve accuracy.
Data Analysis Method
DS which describe the basic features of the data and provide simple summaries about the sample and measures to analyze our data bcox it shows and represents our research data distribution in a more sensible way. In our research, we prepare a summary statistics for distribution of firm's excess value measures derived from theree diff multiplier approaches for single-segmented firms and multipsegmented firms. We report the mean , median, mode, standard error, standard deviation, sample variance, kurtosis, skewness, and range and confidence level for all the companies for 3 years. Also , we analyze the number of single-segmented firms and multi-segmented firms for all the samples for 2 years; it is illustrated in the bar chart. Furthermroe, we anlaysze the percentage of sectors in overall samples; we illustrate it by using a pie chart. This is to identify which sector is more popular in Malaysia. All descriptive statistics willb e prepared according to observations over the period form â€¦.. in order to hav more insights and to perform trend analysis.
Based on the DS, we hav found out that our result is not normally distributed. Hence, non-parametric tests will be used to test on our research objectives to avoid results form being biased due to outliers.
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