The value relevance of intellectual capital disclosure: empirical evidence from Kuwait

Abstract

Purpose Drawing on market efficiency theory and studies on intellectual capital (IC) disclosure, this study aims to examine if IC information provided in the corporate annual reports of Kuwait Stock Exchange (KSE) listed companies in 2013 is value-relevant. Design/methodology/approach The analysis is divided into two parts. First, the level of intellectual capital disclosure (ICD) of KSE-listed companies is examined using the content analysis method. Second, the value relevance of financial reporting is examined empirically using Ohlson’s (1995) valuation model. Findings The results reveal that ICD is positively and significantly associated with market value, suggesting that greater ICD is valued by KSE market participants, who incorporate it into their valuation models. Practical implications Given the importance of ICD in enhancing equity valuation, a practical implication of this study is to make managers aware of its positive and significant effect on equity valuation, which may encourage companies to increase their level of disclosure. Originality/value This is the first study of the association between the level of ICD and the value relevance of financial reporting for market participants in Kuwait. It therefore extends and confirms the prior literature by broadening its scope to include frontier markets. Furthermore, it provides empirical evidence in support of recent calls from regulators and professional bodies for information that supplements and complements traditional financial reporting.

Intellectual Capital Disclosure, Information Asymmetry, Cost of Capital, and Firm Value: Empirical Studies on Indonesian Manufacturers

“…*p < .10, **p < 0.05, ***p < 0.001 (two-sided test). Orens et al, (2009); Mansour et al, (2014); Ferchichi and Paturel (2013); Dashti et al, (2016); Alfraih et al, (2017); Sudibyo and Basuki (2017); Subaida, Nurkholis and Mardiati (2017). As signaling theory proposes that voluntary disclosure such as intellectual capital information allow investors and other relavant staekholders to produce a better assessment about the organization"s values and their ability to generate future wealth.…”

“…They believe that the reduction in information asymmetry would reduce an organization"s cost of capital (Bruggen et al, 2009;Botosan, 1997). According to economic theory, information asymmetry leads to an increase in organizations cost of capital because it leads to adverse selection between buyers and sellers (Alfraih, 2017), which tends to reduce the liquidity of an organization"s securities (Glosten & Milgrom, 1985).…”

“…Intellectual capital disclosure comprises of three major components namely human capital, structural capital and relational capital (Cabrita & Vaz, 2006;Benevene & Cortini, 2010;Boujelbene & Affes, 2013). ICD is valuable to the extent that it affects investors" behaviors in their decision-making (Alfraih, 2017;Dashti et al, 2016;Williams, 2001;Anifowose et al, 2016;Salehi, Rostami & Hesari, 2014;Ferchichi & Paturel, 2013).…”

Value Relevance Human Capital Information on the Annual Report of Indonesia Listed Companies

“…If we look from a strategic perspective, disclose a human capital as an intellectual asset of the company actually can be a good strategy for the effectiveness of the company and also can be the way to attract investors (Mariappanadar & Kairouz, 2017). Especially in the current economic conditions, companies should realize that some investors are not just looking for financial information but also nonfinancial information that can help them to evaluate every opportunity and risk of their investment (Alfraih, 2017).…”

“…The value relevance and the disclosure of intangible assets: intellectual capital, has been the focus of several previous studies (Vafaei, Taylor, & Ahmed, 2011;Gamerschlag, 2013;Alfraih, 2017). But the research for the importance of human capital information still limited, one of them is the research by Gamerschlag (2013).…”