Intellectual capital and analyst forecast: evidence from the high-tech industry in Taiwan

Abstract

This article investigates the relation between the disclosure of intellectual capital and analysts’ forecasts based on the Taiwanese high-tech industry. We hypothesize that corporate disclosures can be important means for management to communicate firm performance to outside investors and the firms that provide extensive coverage of intellectual capital can reduce the information risk in analysts’ forecasting process. We find that firm-specific disclosures of intellectual capital relates negatively with analysts’ forecast errors and dispersions. While many companies are concerned that the disclosure of intellectual capital can damage their competitive position in product markets, our results suggest that firms can reduce the information risk with voluntary disclosures on intellectual capital.

Keywords:

• intellectual capital
• analyst forecast
• information risk
• high-tech industry

JEL Classification::

• N25
• M40
• M21
• M14

Notes

¹ Compared to tangible (physical and financial) assets, intangible assets are associated with more complex information, due to the high uncertainty in the value of intangibles (will a newly invented technology contribute to future profit?) and fuzzy property rights on the asset (who owns the value of employee training – employer or employee?) (Gu and Wang, 2005).

² Our hypothesis is based on the assumption that analysts may use similar forecasting models and the typical differences in the analysts forecast are due to the extent of acquired private information (Lang and Lundholm, 1996).

³ For example, firms in the pharmaceuticals industry tend to provide much more disclosure about their research and development activities than do firms in other industries (Botosan, 1997).