The explanatory factors of intellectual capital disclosure to financial analysts

Abstract

The objective of this paper is to assess the information dealing with intellectual capital that firms disclose in presentations to sell-side analysts and the influences on these disclosures. Analysis of a sample of 257 reports from listed Spanish companies for 2000–2001 shows differences in disclosure levels by categories of intellectual capital. Companies usually report information regarding strategy, customers, and processes; information about research, development, and innovation is less often reported to financial analysts. Larger companies disclose higher levels of intellectual capital information, frequently outside presentations conducted after quarterly, half-year, or annual results announcements.

Acknowledgements

The authors acknowledge the helpful comments of Per Nikolaj Bukh and Jan Mouritsen on an earlier draft of this article. They also thank the two anonymous referees and the editor of the European Accounting Review, Kari Lukka, for useful suggestions.

Notes

¹From a theoretical point of view, disclosures reduce the cost of capital. Empirical results are mixed and depend crucially on the metrics of disclosure and cost of capital. See Gietzmann and Trombetta (2000). For further information regarding benefits and cost of voluntary disclosure, see Lev (1992) and Core (2001).

²Inside or material information is any information that could have a significant effect on the evolution and formation of prices in a regulated market (price-sensitive information).

³On October 23, 2000, the Securities and Exchange Commission also issued a standard concerning the disclosure of share price-sensitive information through selective channels. Regulation FD (Fair Disclosure) standard can be consulted in www.sec.gov/rules/final/33-7881.html.

⁴See http://www.cnmv.es

⁵A exchange of insider information in one-to-one meetings or telephone calls with only one analyst and one representative could easily pass without detection. In such channels the risks of the selective disclosure of privileged information are quite higher.

⁶Other studies emphasise the importance of such contacts to users other than analysts. Among the studies of institutional investor organisations, Holland and Doran (1998) and Finn (1981) report that private information from a direct company contact was central to fund management decisions.

⁷One firm, for example, made 7 presentations with mean disclosure value 36.1 and standard deviation 14.7 (maximum value 47.1 and minimum 8.8).

⁸By way of example, if a subindex of Human Capital (DI-HC) is 10%, this means the presentation has reported 10% of the intellectual capital items included in the category Human Capital.