Article2011

Effects of intellectual capital information disclosed in annual reports on market capitalization

Abdulrahman Anam Ousama · A.H. Fatima · Abdul Rashid Hafiz Majdi

93 citations0/0 files storedJournal of Human Resource Costing & Accounting

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Intellectual Capital and Performance Analysis Auditing, Earnings Management, Governance Accounting Theory and Financial Reporting

Abstract

Purpose This paper aims to examine the effects of intellectual capital (IC) disclosure in the annual reports of listed companies in Bursa Malaysia (BM) on their market capitalization (MCAP). Design/methodology/approach The paper uses secondary data for listed companies on BM for the years 2002 and 2006. A disclosure index was used to measure the extent of IC information disclosed in the annual reports. The MCAP data were obtained from the Bloomberg database. The data were analyzed using correlation and regression analyses. Findings The paper finds that the extent of IC disclosure by Malaysian‐listed companies has a positive significant effect on their MCAP. In addition, the paper found that there is significant positive impact of the control variables (i.e. book value, net profit, firm size and leverage) on the MCAP. Research limitations/implications Although the paper was focused on the IC information and MCAP data for two years (i.e. 2002 and 2006), it provides empirical evidence that IC disclosure does affect the MCAP of companies. Hence, it means that the IC information is picked up by the market. Future research may incorporate more control variables and years. Practical implications The findings provide empirical evidence that IC information disclosed by the Malaysian‐listed companies positively affects their MCAP. These findings can be considered to be useful for these companies and work as a signal towards the need for more IC disclosure. In addition, the findings could be useful for the regulatory bodies, e.g. the Malaysian Accounting Standards Board and BM, perhaps to develop guidelines on IC disclosure to enhance transparency and increase confidence in the capital market. Originality/value The paper is considered the first empirical study to examine the effects of IC disclosure in the annual reports of Malaysian‐listed companies on their MCAP.

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References

1995Earnings, Book Values, and Dividends in Equity Valuation*1976Business research methods 1998Intellectual capital: The new wealth of organizations 1997Disclosure level and the cost of equity capital.1997The New Organizational Wealth: Managing and Measuring Knowledge-Based Assets 2000Intellectual capital and business performance in Malaysian industries 1995Disclosure Policy, Information Asymmetry, and Liquidity in Equity Markets*2005An empirical investigation of the relationship between intellectual capital and firms’ market value and financial performance

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2017Intellectual capital disclosure and corporate market value: does board diversity matter?2015Intellectual capital and financial performance of Islamic banks 2020An Empirical Study on the Impact of Sustainability Reporting on Firm Value 2020Corporate governance on intellectual capital disclosure and market capitalization 2016Relational capital disclosure, corporate reporting and company performance

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