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Does intellectual capital disclosure reduce an IPO's cost of capital?

63 citations0/0 files storedJournal of Intellectual Capital

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

Abstract

Purpose The pivotal aim is to examine the association between underpricing and intellectual capital (IC) disclosures amongst Singapore initial public offerings (IPOs). A secondary aim is to elaborate on the research by Bukh into IC disclosures by Danish IPOs. Design/methodology/approach Using a theoretical framework based on the notions of ex ante uncertainty and information asymmetry, the study examines empirically 334 Singapore IPO prospectuses between 1997 and 2004. Findings Contrary to theoretical predictions and much of the prior financial disclosure/underpricing research, we find a positive association between underpricing and the extent of IC disclosure. Additional sub‐sample analysis shows that the positive association holds across the market's broader industry base, but is strongest amongst IPOs that are heavily reliant on IC resources. Research limitations/implications The research studies Singapore IPOs only, within a specific timeframe (1997‐2004), and concentrates on a single disclosure mechanism (though the one considered most significant to an IPO). Practical implications Empirical analysis suggests issuers may not use IC disclosures effectively to reduce their cost of capital. Rather, they use IC disclosures as a strategic tool to complement underpricing. Further, findings suggest policymakers may need to introduce minimal uniform IC disclosure requirements to prevent a speculative IPO market from developing as the significance of IC increases. Originality/value Study is the first to provide empirical evidence of the association between IC disclosures and underpricing. Further, it is one of the very first to examine the consequences of IC disclosures and thereby provide a new path for future IC disclosure research.

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References

1991Disclosure, Liquidity, and the Cost of Capital 1997Disclosure level and the cost of equity capital.1996Corporate Disclosure Policy and Analyst Behavior.1993Cross-Sectional Determinants of Analyst Ratings of Corporate Disclosures 1986Investment banking, reputation, and the underpricing of initial public offerings 2001Essays on disclosure 2002A Review of IPO Activity, Pricing, and Allocations 1990Initial Public Offerings and Underwriter Reputation

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2010The nature and extent of voluntary intellectual capital disclosures by Australian and UK biotechnology companies 2011Intellectual capital reporting in a South Asian country: evidence from Bangladesh 2014Disentangling the Effects of Corporate Disclosure on the Cost of Equity Capital 2009Intellectual capital disclosures in Japanese IPO prospectuses 2019Corporate governance and target price accuracy 2019Does increased disclosure of intangible assets enhance liquidity around new equity offerings?

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