Intellectual capital disclosure and market capitalization

Abstract

PurposeThis paper aims to develop a descriptive framework of the components of intellectual capital in annual reports. The paper also aims to investigate the effects of disclosure of intellectual capital on market capitalization.Design/methodology/approachThe components of intellectual capital are used as units of analysis to content analyze the annual reports of a sample of 58 Fortune 500 companies over the five‐year period of 1993‐1997.FindingsThe frequency of disclosure of information about brand and proprietary processes has increased over the study period. The results also point to significant differences between the “new” and “old” economy sectors with respect to intellectual capital categories of brand and partnerships where there is more disclosure by “old” economy sector and information technology and intellectual property where there is more disclosure by the “new” economy sector. Finally, the results show a highly significant effect for the intellectual capital disclosure on market capitalization.Research limitations/implicationsThe time period is limited to the years before the market excesses of the late 1990s and the market decline of the 2000s. The results have significant implications for setting standards of disclosure of intellectual capital in annual reports.Originality/valueThis is the first paper to provide information on disclosure of intellectual capital by fortune 500 companies in the USA. Its results have value for various users of annual reports who seek to understand the ways in which companies disclose information about their intellectual capital.

Intellectual capital disclosure determinants and its effects on the market capitalization: evidence from Indonesian listed companies

“…The findings are similar to study by [22] and [23]. The more IC items owned by company, the higher market capitalization would be.…”

The Relationship Between the Intellectual Capital Disclosure and Cost of Debt Capital – A Case of Slovenian Private Audited Organisations

“…size of the organisation and industry type (Brüggen et al, 2009;Whiting & Woodcock, 2011), firm age (White et al, 2007;Sonnier et al, 2009), corporate governance (Li et al, 2008;Hidalgo et al, 2011;Haji & Ghazali, 2013), listing status (Williams, 2001)), and (2) the research which assesses the impact of intellectual capital disclosures on different areas of organisation's performance and its valuation. The latter research provides evidence on, for example, significant and positive effect of intellectual capital disclosures on market capitalization and firm value (Abdolmohammadi, 2005;Orens et al, 2009), the impact of intellectual capital disclosures on the reduction of information asymmetry (Orens et al, 2009;An et al, 2011) and (consequently) the impact of voluntary intellectual capital disclosures on the reduction of the cost of equity capital (Orens et al, 2009;Boujelbene & Affes, 2013;Mangena et al, 2010Mangena et al, , 2016. In these studies, the hypotheses were tested on the samples of (large) organisations, which are listed on the stock exchanges of developed capital markets, e.g.…”

“…In these studies, the hypotheses were tested on the samples of (large) organisations, which are listed on the stock exchanges of developed capital markets, e.g. the USA (Abdolmohammadi, 2005), the United Kingdom (Mangena et al, 2010(Mangena et al, , 2016, France (Boujelbene & Affes, 2013) and other individual countries of continental Europe (Orens et al, 2009). These are thus the studies whose very focus of research (i.e.…”

“…For that reason, a number of studies focused on the importance of such disclosures for owners (e.g. Abdolmohammadi, 2005;Orens et al, 2009;Bou-1 The classification of a large number of intellectual capital items into different sub-categories adequately supplements its definition (Choong, 2008, p. 617). Human capital thus comprises skills and knowledge of employees and can be studied at individual level (e.g.…”

“…Considering the significance of agency issues and public availability of information about intellectual capital (Williams, 2001;Bozzolan et al, 2003;Abdolmohammadi, 2005;Abeysekera, 2006), the research into the associations between intellectual capital disclosures and the cost of debt capital (Orens et al, 2009;Hsuehchang, 2013) has focused on listed organisations. Although there may exist the agency issue regarding private (non-listed) organisations with lenders as the main source of external financing (Koren et al, 2014), we have not been able to find empirical research on the associations between intellectual capital disclosures of such private organisations and the cost of their debt.…”