Financing Intangibles in Malaysian Firms– is there Evidence of a Pecking Order?

Suresh Ramachandra, University Putra Malaysia
Annuar Md. Nassir, University Putra Malaysia
Murali Sambasivan, University Putra Malaysia
Huson Joher, University Putra Malaysia

Abstract: Firms are increasingly seen to rely on intangible assets to harness their competitive advantage. However, the funding sources by which these intangibles are brought into being and sustained remain an empirical question. Taking the difference between the book values and market values to proxy the stock of intangibles, present in publicly listed firms in Malaysia, this study provides evidence of a pecking order by which intangibles are funded. The conclusions in this research were reached using the Cobb-Douglas production function to specify the relationship between input resources and the output. A Structured Equations Model consisting of six equations to capture the exogenous and endogenous nature of the variables was constructed and estimated using Lisrel. The results confirmed that firm’s in Malaysia follow a pecking order to finance their intangibles where internally generated equity ranks as the main source followed by external equity and then debt capital.