Forward-looking intellectual capital disclosure in IPOs

Abstract

Purpose This study contributes to intellectual capital (IC) disclosure research. Focussing on reducing the information asymmetry associated with agency theory, the purpose of this paper is to investigate the extent to which managers and owners disclose IC in initial public offering (IPO) prospectuses. In particular, it examines the influence on post-issue stock performance based on the IPOs of technology companies listing on the NASDAQ from 2002 to 2013. Parallels are drawn to integrated reporting (<IR>), which was developed after the global financial crisis (GFC) because of the perceived shortcomings of regulated forms of financial reporting. Design/methodology/approach The authors apply a two-stage methodology, using content analysis of prospectuses to determine the extent of IC disclosure, then combining this data with market data using regression analysis to determine the influence of IC disclosure in IPO prospectuses on post-issue stock performance. Findings According to the content analysis results, these IPO prospectuses contain significant amounts of IC disclosure for the subsequent analysis. The authors find that after the GFC technology companies disclose more IC information. The econometric analysis also reveals that IC disclosure has a higher influence on post-issue stock performance after the GFC than before. Research limitations/implications The research shows how IPO prospectuses are a valid form of disclosure to investigate the impact of reducing IC information asymmetry because they contain significant amounts of forward-looking non-financial information about the company’s development. Additionally, the results are relevant to discussions about the impact of <IR>. If IC and non-financial disclosures contained in an integrated report are forward-looking and reduce information asymmetry then <IR> may have value relevance to a firm. Practical implications The research confirms that more IC disclosure information in prospectuses may positively influence companies’ post-issue stock performance, especially in the long run. However, the authors caution that disclosing IC information to investors is not the panacea for increased post-IPO share performance. Originality/value This paper is novel because it shows the value relevance of IC disclosures to reduce information asymmetry through its focus on prospectuses, which helps to understand of the potential impact of <IR>.

Does board gender diversity influence voluntary disclosure of intellectual capital in initial public offering prospectuses? Evidence from China

“…In this study, the measure of the extent of IC disclosure is based on an IC disclosure index employed by Bukh et al (2005), which has been used in different prior studies (Garanina & Dumay, 2017;Nielsen, Roslender, & Schaper, 2016;Singh & Van der Zahn, 2007). The adoption of this measure is based on the fact that the index could represent a proxy for IC information in the IPO prospectus, while the index approach contributes to the importance of the objectivity of the research and the reliability of the results (Bukh et al, 2005).…”

“…Each IPO prospectus was reviewed on 78 data items, and a comprehensive database was developed to construct the ICDI. In the absence of a universally accepted ICDI, similar approaches have been used in prior studies (Garanina & Dumay, 2017;Nielsen et al, 2016;Singh & Van der Zahn, 2007).…”

“…4 There are, however, some exceptions, such as the regulated IC statements in Denmark (Bukh et al, 2005), and most recently integrated reporting. Garanina and Dumay (2017) state that integrated reporting is a relatively new phenomenon that firms are not quite familiar with, and that the rules and regulations concerning integrated reporting frameworks are still evolving; therefore, it is too early to draw any conclusions about IC disclosure in integrated reporting. 5 Originally developed by Simpson (1949), the Blau index is used to measure the diversity in different groups, such as gender, ethnicity and education, and so forth.…”

“…Prior studies concur that female directors, due to their different traits such as better networking and socialization skills, can help firms reduce the uncertainties concerning firms' dependence on the external environment (Bear et al, 2010). Prior studies (Bukh, Nielsen, Gormsen, & Mouritsen, 2005;Garanina & Dumay, 2017) also link post-IPO success to IC disclosure in IPO prospectuses because such information disclosure reduces uncertainties and informs the market participants of the true value of the company. It then follows that female directors, due to their unique traits, would be associated with higher levels of IC disclosure in IPO prospectuses.…”

“…Although a plethora of existing studies increase our understanding on the business implications of BGD by examining its impacts on firm performance (Adams & Ferreira, 2009;Ararat, Aksu, & Cetin, 2015;Liu, Wei, & Xie, 2014;Nadeem, Suleman, & Ahmed, 2019), information asymmetry (Abad, Lucas-Pérez, Minguez-Vera, & Yagüe, 2017;Gul, Srinidhi, & Ng, 2011), executive/top management compensation (Lucas-Pérez, Mínguez-Vera, Baixauli-Soler, Martín-Ugedo, & Sánchez-Marín, 2015;Perryman, Fernando, & Tripathy, 2016), and corporate social responsibility (Bear, Rahman, & Post, 2010), the relationship between BGD and intellectual capital (IC hereafter) disclosure in IPO prospectuses remains an unopened black box. Prior studies argue that nonfinancial information, particularly IC, in IPO prospectuses may result in lower cost of capital (Garanina & Dumay, 2017), increased market capitalization (Bismuth & Tojo, 2008), higher post-IPO stock returns and reduced information asymmetry (Atkins & Maroun, 2015). Thus, existing studies (Cerbioni & Parbonetti, 2007;Muttakin, Khan, & Belal, 2015;Tejedo-Romero, Rodrigues, & Craig, 2017) generally establish a causal link between corporate governance and IC disclosure in annual reports, asserting that corporate boards have a "fiduciary responsibility" to utilize IC to increase firm value and gain competitive advantage (Keenan & Aggestam, 2001).…”