Journal of Intellectual Capital

Forward-looking intellectual capital disclosure in IPOs: Implications for

intellectual capital and integrated reporting
Tatiana Garanina John Dumay
Article information:
To cite this document:
Tatiana Garanina John Dumay , (2017)," Forward-looking intellectual capital disclosure in IPOs
Implications for intellectual capital and integrated reporting ", Journal of Intellectual Capital, Vol. 18 Iss
1 pp. 128 - 148
Downloaded by University of Colorado Boulder At 00:10 20 January 2017 (PT)

Permanent link to this document:

http://dx.doi.org/10.1108/JIC-05-2016-0054
Downloaded on: 20 January 2017, At: 00:10 (PT)
References: this document contains references to 72 other documents.
To copy this document: permissions@emeraldinsight.com
The fulltext of this document has been downloaded 18 times since 2017*
Users who downloaded this article also downloaded:
(2017),"Involuntary disclosure of intellectual capital: is it relevant?", Journal of Intellectual Capital, Vol.
18 Iss 1 pp. 29-44 http://dx.doi.org/10.1108/JIC-10-2016-0102
(2017),"Corporate disclosure of human capital via LinkedIn and ownership structure: An empirical
analysis of European companies", Journal of Intellectual Capital, Vol. 18 Iss 1 pp. 102-127 http://
dx.doi.org/10.1108/JIC-01-2016-0016

Access to this document was granted through an Emerald subscription provided by emerald-
srm:374341 []
For Authors
If you would like to write for this, or any other Emerald publication, then please use our Emerald
for Authors service information about how to choose which publication to write for and submission
guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information.
About Emerald www.emeraldinsight.com
Emerald is a global publisher linking research and practice to the benefit of society. The company
manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as
well as providing an extensive range of online products and additional customer resources and
services.
Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the
Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for
digital archive preservation.
Downloaded by University of Colorado Boulder At 00:10 20 January 2017 (PT)

*Related content and download information correct at time of download.


JIC
18,1
128
Received 13 May 2016
Revised 23 August 2016
Accepted 29 August 2016
Downloaded by University of Colorado Boulder At 00:10 20 January 2017 (PT)
Journal of Intellectual Capital
Vol. 18 No. 1, 2017
pp. 128-148
© Emerald Publishing Limited
1469-1930
DOI 10.1108/JIC-05-2016-0054
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1469-1930.htm
Forward-looking intellectual
capital disclosure in IPOs
Implications for intellectual capital and
integrated reporting
Tatiana Garanina
Graduate School of Management, St Petersburg University,
St Petersburg, Russia, and
John Dumay
Department of Accounting and Corporate Governance,
Macquarie University, Sydney, Australia
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 (oIRW), 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 oIRW . If IC and non-financial disclosures contained
in an integrated report are forward-looking and reduce information asymmetry then oIRW 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 oIRW .
Keywords Agency theory, Intellectual capital, Content analysis, Integrated reporting,
Intellectual capital disclosure, Information asymmetry
Paper type Research paper
1. Introduction
IC disclosure is widely debated in accounting literature and has become more topical
because of its inclusion, along with other related capitals, in the latest integrated reporting
(o IRW) guidelines (International Integrated Reporting Council (IIRC), 2013, p. 2). In its
current form, oIRW is seen as a direct response to the global financial crisis (GFC) because
of the perceived shortcomimgs of regulated forms of financial reporting (Adams and
Tatiana Garanina would like to acknowledge financial support from Russian Science Foundation grant
(project No. 15-18-30048) for conducting the empirical part of the research.
 Simnett, 2011; Abeysekera, 2013; Dumay et al., 2016). However, it is not possible to study the Intellectual
impact of IC and non-financial disclosures in oIR W because the International Integrated capital
Reporting Council (IIRC) only released the final oIRW guidelines in December 2013. Thus, disclosure
there is not a sufficient corpus of intgrated reports available over time to enable any
longitudinal studies examing the impact of IC and other non-financial diclosures on the
value creation and/or the price of a firm’s equities. At the same time the question of whether
financial markets react or reflect a value premium in any way based on oIR W is also a key 129
issue (de Villiers et al., 2014). We argue that oIRW and its association with value creation
has important implications for managing companies and how managers disclose
information to investors. Additionally, the findings contributes to the IC disclosure and
oIRW literature from an information asymmetry and agency theory perspective.
In this paper, we argue that prospectuses are a better medium for disclosing IC because there
is a material difference between information in annual reports and prospectuses. As Cordazzo
Downloaded by University of Colorado Boulder At 00:10 20 January 2017 (PT)

(2007) reveals, companies provide investors with more voluntarily disclosed information devoted
to strategy, future options for development and risk in prospectuses than in annual reports.
Comparisons show that annual reports focus more on company historical data and performance
while prospectuses focus more on future perspectives (Branswijck and Everaert, 2011). While
both reports provide consolidated financial statements, the main difference between them is the
significant disclosure of non-financial information in prospectuses, that is absent from annual
reports. Additionally, prospectuses are timely and relevant disclosures for investors because
companies design them to influence imminent investment decisions. Therefore, researchers
cannot analyse prospectuses using the same reasoning as for annual reports.
Our paper is novel because it contributes to IC disclosure research by investigating the
extent of IC disclosure to reduce information asymmetry in initial public offering (IPO)
prospectuses and its influence on post-issue stock performance based on IPOs of technology
companies listing on the NASDAQ from 2002 to 2013. The research uses a two-stage content
analysis research approach (Krippendorff, 2013, p. 97; Dumay and Cai, 2014, p. 144).
First, we measure the extent of IC disclosure using an IC index to show that IPO
prospectuses contain enough IC to justify combining this data with market data. In the
second stage, we find that IC disclosure has a higher influence on post-issue stock
performance after the GFC than before the GFC. We use the GFC as a significant
comparison point because the IIRC developed oIRW to overcome the shortcomings of
regulated financial reporting (Dumay et al., 2016). In order to find the relationship between
voluntarily disclosed information about IC and share prices (as a measure of company
value). Accordingly, we investigate two main research questions:
RQ1. Has IC disclosure in IPO prospectuses changed since the GFC?
RQ2. Does the influence of IC disclosure in IPO prospectuses on post-issue stock prices
differ before and after the GFC?
We conclude that managers who increase the level of IC disclosure in IPO prospectuses can
positively influence the firm value especially in the long term. However, at the same time, we
argue that while disclosing IC indicates the likelihood of better post-issue stock performance,
managers should put IC into practice to ensure the long-term efficiency of their companies.
We also argue that the more managers reduce IC information asymmetry, the greater potential
there is for attracting financial resources from potential investors, especially in the long run.
The paper is organised as follows. Section 2 presents a literature review concerning IC
disclosure and the main benefits companies obtain from doing so and discusses how the
GFC might influence IC disclosure. From these discussions, we develop hypotheses based on
IPO prospectuses as a data source. Sections 3 and 4 outline data collection and the research
methodology. The research results are in Section 5. To conclude, Section 6 discusses the
main implications for practice and research.
 JIC 2. Literature review
18,1 The issue of voluntary IC and/or non-financial disclosure has received significant attention
in the accounting literature with over 110 studies published from 1999 to 2013 (Dumay and
Cai, 2014, p. 273). However, as Dumay and Cai (2014, p. 279) outline, their “analysis found
many conflicting research findings”, suggesting that the literature does not deliver any
conclusive and consistent evidence relating to the benefits of IC disclosure. Companies
130 voluntarily disclose IC and non-financial information in a variety of reports, including
annual, IC (see Mouritsen et al., 2003), sustainability (e.g. Global Reporting Initiative, 2013),
corporate social responsibility (e.g. United Nations Global Compact, 2009) and integrated
reports (IIRC, 2013). Moreover, Atkins et al. (2015) argue that social and environmental
reporting is starting to merge with private financial reporting because of oIR W.
Specifically, from an IC perspective, there has been renewed interest in disclosing
information about “capitals” in the latest development in corporate reporting – oIR W,
Downloaded by University of Colorado Boulder At 00:10 20 January 2017 (PT)

which promotes the “creation of value over the short, medium and long-term” (IIRC, 2013,
p. 2). Additionally, oIR W essentially links IC and forward-looking information because it
has “a combined emphasis on conciseness, strategic focus and future orientation, the
connectivity of information and the capitals and their interdependencies” (IIRC, 2013, p. 2).
This firmly connects to the argument that including forward-looking information about how
a company develops its IC is linked to future value creation. Additionally, investors are
interested in any information that can assist them in assessing the value of the firm for
making informed investment choices (Swartz et al., 2006).
While IC reporting has been around since its first appearance at Skandia in the 1990s
(Skandia, 1994; Mouritsen et al., 2001), oIR W is a new reporting framework, having just
issued its first guidleine in 2013 (IIRC, 2013). Some innovative reporting organisations and
countries are pioneering IR practices. For example, South Africa is an oIRW pioneer by
mandating o IR W for companies listed on the Johannesburg Stock Exchange
(de Villiers et al., 2014). The GFC in 2008 fundamentally changed the world’s economy
and increased awareness of business risks. As a result, there is increasing concern with how
companies disclose risks and the impact on performance (Mia and Al-Mamun, 2011; Napoli,
2014), and voluntary disclosure is an option companies use to reduce these concerns (Ienciu,
2014). For example, Wang et al.’s (2013) study of Chinese companies (2005-2009) reveals that
voluntary information disclosure in annual reports increases significantly up to 2008, and
then there is a significant drop in 2009 after the GFC. Similarly, in Mia and Al-Mamun’s
(2011) research, a sample of 48 Australian companies shows an insignificant increase in
social disclosure during the GFC. Thus, it appears that during the GFC voluntary
disclosures did not significantly increase. Mia and Al-Mamun’s (2011), also do not link the
increase in IC disclosure directly to the GFC, and outline that during the GFC companies’
social activities decrease, but the increase in IC disclosure is insignificant. However, after the
initial GFC shock companies might resort to disclosing more information voluntarily to
decrease risk perceptions associated with their activities in comparison to the pre-GFC
period (Wang et al., 2013).
As a reporting innovation, disclosing IC information is a role model for future-oriented
reporting (see Dumay and Tull, 2007). Several studies support the advantages of disclosing
IC to external stakeholders, especially to investors based on the argument that the market
rewards companies that disclose IC information over the long term with better market
valuations (Marr, 2003). Similarly, oIRW is targeted at disclosing information to the
providers of finacial capital such as investors and banks (IIRC, 2013). Thus, the purpose of
IC disclosure is aligned with that of oIR W.
From an agency theory perpective an argument exists for disclosing IC based on
reducing information asymmetry (Healy and Palepu, 2001). According to An et al. (2011,
p. 573) “information asymmetry is another key concept of agency theory” and “it arises
 when one party in a particular agency setting (or relationship) has an information Intellectual
advantage (so-called private information) over another party”. Information asymmetry is capital
assumed to exist in most business settings where the manager (the agent) possesses an disclosure
information advantage over the owner (the principal) since the manager tends to be more
directly involved in the daily operation of the company.
Additionally, some studies in the IC literature argue that reducing IC information
asymmetry leads to a lower wieghted average cost of capital (WACC) and higher market 131
capitalisation, because IC information creates trustworthiness with stakeholders, promotes
a long-term perspective, and has use as a marketing tool (Bismuth and Tojo, 2008). In this
way, preparing a “good” integrated report not only offers better quality information to the
investor community, but actually signals that the respective organisations are taking steps
to meet the information needs and expectations of stakeholder groups (Atkins and Maroun,
2015). Thus, reducing IC information asymmetry aligns with the goals of a prospectus – to
Downloaded by University of Colorado Boulder At 00:10 20 January 2017 (PT)

influence investors to purchase the shares on offer and become owners.

To support the information asymmetry argument, Abdolmohammadi’s (2005) study of the
annual reports of Fortune 500 companies found that IC disclosure has an effect on market
valuations. Abdolmohammadi (2005) also applies a two-stage analysis – first, measuring IC
disclosure using an IC index and then applying regression analysis to define the relationship
between IC disclosure and market capitalisation. As a result, managers might disclose IC
information voluntarily, seeking a lower WACC, more accurate analyst forecasts, higher
liquidity in capital markets and credibility among investors (Garcı´a-Meca, 2005). Another
example is a study by La Rosa and Liberatore (2014), who conclude in their research based on
panel data from 77 biopharmaceutical and chemical companies in seven Western-European
countries, that the cost of capital decreases when more IC is disclosed in reports. Thus,
even though enhanced disclosure entails costs, Bushee and Noe (2000) outlines that increased
disclosure may attract institutional investors who actively manage their portfolios, reducing
share price volatility and hence systematic risk. Therefore, companies might be more inclined
to disclose voluntarily as much information as possible about how they manage their material
risks to investors to reduce their WACC and become more profitable (An et al., 2014;
Farooq and Nielsen, 2014; La Rosa and Liberatore, 2014). Thus, how and why companies
voluntarily disclose IC and non-financial information and its consequences continues to
interest researchers and investors due to the thesis that reducing information asymmetry
between managers and shareholders (investors) results in a lower cost of equity capital
(Abeysekera, 2014; La Rosa and Liberatore, 2014; Leuz and Verrecchia, 2000).
Similarly, the IIRC (2013) guidelines outline in several places that oIRW has cost
implications such as “cost reduction” (p. 17), a “cost/benefit” consideration (p. 22), and
“financial considerations, like cost containment” (p. 26). The guidelines also highlight that
oIRW materially affect the ability of an organisation to create value over time.
Additionally, the IIRC argues that oIRW creates efficiencies through “integrated
thinking” and as it becomes “embedded into an organisation’s activities, the more naturally
will the connectivity of information flow into management reporting, analysis and decision-
making” (p. 2). Therefore, the IIRC alludes to a link between external disclosures and better
performance, which inevitably helps contribute to reducing costs (and thus higher profits)
and higher share prices.
However, researchers involved in analysing voluntary disclosures question the relevance
of reports for disclosure purposes as companies usually issue reports on a periodic (e.g.
annual) basis (Dumay and Tull, 2007). The new oIR W guideline is no different, calling for
a “periodic integrated report by an organisation about value creation over time and related
communications regarding aspects of value creation” (IIRC, 2013, p. 33). However, periodic
reports might not be useful or timely for decision making (see Dumay and Tull, 2007, p. 254)
and, therefore, some researchers question the relevance of these reports to investors because
 JIC investors have the resources to obtain the required information to make investment
18,1 decisions ( Jenkins, 1994). Moreover, the research of Stent and Dowler (2015) shows that
current reporting processes lack integration, oversight and attention to future uncertainties.
Powerful investors would already know about any material risks because they rely on other
mechanisms, such as investor briefings, press releases, the financial media, required
disclosures to stock exchanges and their market research, to inform them (Dumay,
132 2014a, b, 2016). Additionally, should a company disclose material information (usually bad
news) in a periodic report that significantly affects its share price, then additional
information would be asked by the local regulator or stock exchange. Similarly, this would
likely increase an investor’s risk assessment of the company and have the opposite
effect of increasing the WACC to that company because the market cannot rely on the firm’s
managers to disclose, in a timely fashion, information at a time when the market should
be informed.
Downloaded by University of Colorado Boulder At 00:10 20 January 2017 (PT)

While oIRW is currently widely discussed in the accounting literature investigating

the long-term impact of oIRW is not possible now because most companies issuing an
integrated report have only done so recently, and most likely not in accordance with the
oIRW framework issued in 2013. However, as a proxy, one document that companies issue
specifically to inform investors of risks and potential future returns comes in the form of
the prospectus as part of a company’s IPO for shares. In this case, managers intend to show
the company in the best possible light and to show how the company creates value to attract
financial resources from the market (Aharony et al., 1993; Mather et al., 2000; Rashid et al.,
2012). Therefore, prospectuses may contain more non-financial information to present the
company’s prospects in the best way possible (Singh and van der Zahn, 2009; Cumby and
Conrod, 2001). According to Beattie (1999), Cumby and Conrad (2001) and Rashid et al.
(2012), prospectuses are a role model for company disclosure because companies are willing
to report more information in their IPO prospectuses to prevent underpricing. Therefore
prospectuses are useful for investigating how forward-looking disclosures help create long-
term shareholder value.
Similarly, from an IPO and information asymmetry perspective, Jenkinson and
Ljungquist (2001) found that by increasing voluntary IC disclosure the ex ante uncertainty
surrounding an IPO reduces. Additionally, research by Abeysekera (2014) based on listed
firms in Sri Lanka shows that voluntary disclosure of IC attracts more capital from
shareholders. Therefore, IC disclosures in prospectuses are arguably a way companies can
reduce information asymmetry by disclosing future-oriented information to investors that
possibly has financial benefits for the company (An et al., 2011). As for the level of voluntary
disclosure, there are studies arguing that economic crises may influence IC disclosure
practices (Rashid et al., 2012; Loughran and Ritter, 2004; Singh and Van der Zahn, 2009).
One explanation is that the trust in financial data decreases during times of, and after,
financial crises (Arnold, 2009; Barth and Landsman, 2010; Bui, 2011). Therefore, using
prospectuses as a proxy for oIRW, and considering some time has passed since the GFC
occurred there should be an adequate amount of data available to ask the question:
RQ1. Has IC disclosure in IPO prospectuses changed since the GFC?
Therefore, we hypothesise that because investors might lack trust in financial disclosures
since the GFC, managers preparing prospectuses will increase the extent of IC disclosure.
Thus, we state the hypothesis as follows:
H0. There has been no increase in IC disclosure in prospectuses since the GFC.
Additionally, because companies issue prospectuses to promote their shares among
investors, examining prospectuses offers a unique opportunity to study the amount and
type of voluntary information chosen to reduce information asymmetry for capital markets
 and the impact it has on investment decisions. Accordingly, Aharony et al. (1993) and Intellectual
Mather et al. (2000) argue that management has an incentive to present the company in the capital
best possible light to maximise share issue proceeds. Thus, analysing IPO prospectuses disclosure
provides insight into which types of information companies disclose to entice investors to
purchase their shares. Additionally, Ang and Brau (2002) claim that higher company
transparency before the IPO decreases IPO float costs and Schrand and Verrecchia (2004)
further find that greater disclosure frequency in the period prior to the IPO leads to a lower 133
underpricing effect. Therefore to build on question one, we would like to find out whether IC
disclosure in IPO prospectuses influences post-issue stock performance and how, if this
influence exists, it has changed due to the GFC. Therefore, we formulate research
question two being:
RQ2. Does the influence of IC disclosure in IPO prospectuses on post-issue stock prices
Downloaded by University of Colorado Boulder At 00:10 20 January 2017 (PT)

differ before and after the GFC?”

In this case we formulate the following hypothesis:
H0. There has not been a higher influence of IC disclosure in prospectuses on post-issue
stock performance before the GFC.

3. Data collection
To answer the research questions we analyse information technology (IT) companies listed
on the NASDAQ because companies in industries such as IT and healthcare are more
willing to disclose IC than others (Dumay, 2012, p. 11). Additionally, according to Bukh et al.
(2005), Cordazzo (2007) and Rimmel et al. (2009) there are differences in IC disclosure content
in IPO prospectuses, varying from 10 to 40 per cent in different industries, with higher
disclosure levels for IT and R&D companies where arguably IC plays a more important role
in value creation. In this case, technology companies make up the research sample
companies because “intellectual capital is regarded as being especially important in
high-tech industries” (Rimmel et al., 2009, p. 4). Johnson et al. (2001) support a single industry
analysis, arguing that this provides for a sound analysis uninfluenced by other
industry based factors. Therefore, IT companies would be useful to examine because they
already have an IC disclosure track record.
Furthermore, we analyse IPO prospectuses because companies prepare these documents
to attract and convince potential investors to buy their shares. The documents that regulate
the disclosure of information when listing on the NASDAQ are Forms 1-F and 20-F so
we use these for our content analysis. When applying content analysis, researchers have
the choice of starting with an a priori framework, or to use an a posteriori approach utilising
a predefined disclosure index (Krippendorff, 2013). To make the research comparable and
consistent with previous research utilising IPO prospectuses we use an a posteriori IC
disclosure index.
To determine the timeframe for the sample the research applies the following logic:
(1) As the observation window equals 500 days the company has to list before April
2013 (+500 days ¼ August 2014).
(2) To avoid the effects of dot.com bubble, listings we only include IPOs after 2002.
(3) To take into account the GFC of 2008 (officially the crisis continued from December
2007 to June 2009), all IPOs are divided into three groups: those that were listed
before, during, and after the GFC (with consideration of a 500-day observation
window that brings us to some intentional gaps reflected below):
• companies listed before the crisis – listing before August 2006;
 JIC • companies listed during the crisis – listing from December 2007 to February
18,1 2008; and
• companies listed after crisis – listing from July 2009 to April 2013.
These time dimensions are in line with several recent GFC studies (Ahmed Haji and
Mohd Ghazali, 2012; Claessens et al., 2010; Fidrmuc and Korhonen, 2010; Mia and Al-Mamun,
2011; Wang et al., 2013). Taking into account these constraints our search finds 154 technology
134 firm prospectuses fitting the criteria. Table I presents information about the sample.
For our research, we propose that the more information disclosed about IC in technology
companies listed on NASDAQ (and the higher the IC index is) the more influence this will
have on post-issue stock performance. The sample companies are from the NASDAQ stock
exchange because the NASDAQ is famous as an exchange for technology companies and
uses the classification “Technology companies[1]”.
Downloaded by University of Colorado Boulder At 00:10 20 January 2017 (PT)

Price data analysed in the research is considered in several ways. First, we take very short-
term event study data that is taken for a two-day window, reflecting the buy-and-hold return
for a very short period of time – the day of announcement (day 0) and the day immediately
following trading day (day +1). This period shows the market response to the IPO immediately.
Second, we take a longer period of +5 days after the IPO took place that reflects a short-term
window for the buy-and-hold return. Third, we analyse the period of +30 days after the IPO
when the market gets more information about the company because of some price
sensitive announcements that are made during this period. Fourth, we take two long-term
windows – +250 days after the IPO and +500 days. This will allow us to understand whether
the effect of disclosure information on IC is a long-term effect or it disappears in a long run.
The previous literature shows that there is often a negative post-issue stock performance
due to several reasons, including not being able to access the risks fairly, the measurement
of the stock performance in a long run and inappropriate benchmark selection (Singh and
Van der Zahn, 2009). According to the same research the IPO shares are bought only by
optimistic investors and then when some additional information about a company appears
the optimistic price falls to the mean market expectations.
Due to a high level of information asymmetry between managers of a company and
potential investors further difficulties in price valuation appear. Managers can open
different information about the company, sometimes boosting the results in financial
statements to attract potential investors. After the GFC not all investors trust the figures
represented in financial statements because reality reveals that the figures provided are
sometimes overly optimistic. Therefore, non-financial information is important from our
point of view because it helps reduce information asymmetry, especially the gap left behind
from the lack of trust in financial information.
We use content analysis and regression analysis to answer the research questions. This
research project applies them separately because each method produces different kinds of
results. According to Krippendorff (2013, pp. 94-97) content analysis is separate from
subsequent regression analyses and must be completed first to ensure data reliability.
Once we establish the reliability of the content analysis data, we then utilise the data to
“investigate the worlds of others” and “other phenomena”. Therefore, to present the
methodology and results we present the content analysis results first and the regression
analysis second (Dumay and Cai, 2015, pp. 143-145).

Table I. Year
Description of the Characteristic 2002 2003 2004 2005 2006 2007 2009 2010 2011 2012 2013
sample by years of
observation Number of companies 6 5 12 12 13 3 5 29 26 28 15
 4. Methodology Intellectual
4.1 Content analysis methodology capital
This section answers the first research question: disclosure
RQ1. Has IC disclosure in IPO prospectuses changed since the GFC?
by testing the related hypothesis being:
H0. There has been no increase in IC disclosure in prospectuses since the GFC. 135
vs
H1. There has been an increase in IC disclosure in prospectuses since the GFC.
Additionally, because there is no universally accepted IC index we base our research on
Downloaded by University of Colorado Boulder At 00:10 20 January 2017 (PT)

previous research papers to ensure our results are comparable. The same approach for
constructing the IC index was used in related research (Abeysekera, 2006; Beattie
and Thomson, 2007; Guthrie and Petty, 2000; La Rosa and Liberatore, 2014; Singh and
Van der Zahn, 2009). Thus we argue, this is a valid approach to developing an IC index.
An IC disclosure index is a method for identifying and scoring particular information
disclosures using either 0 for “no” or 1 for “yes” for each item. This categorical record is the basis
for calculating a percentage disclosure index for each company by dividing the sum of
disclosures by the denominator of total items measured. We specifically do not use a quality of
IC disclosure measure, for example 0 for “no”, 1 for “yes, narrative” or 2 for “yes, quantitative”
because of the continued debate in the IC literature about what is a quality disclosure.
As Dumay and Cai (2015, p. 139) ask “What makes one form of disclosure different from another
or more valuable than another and how does one justify attaching a higher value to the
disclosure?” Therefore, we are first interested in whether companies disclose or not to answer
our first research question, not in the quality of the disclosure. Additionally, Dumay and Cai
(2015, p. 139) reveal that IC quality disclosure indexes have up to six different quality
classifications and “what merits a score of 0, 1, 2, 3, 4 or 5 is subjective and inconsistent”, which
arguably “suggests that using different weighting scales will also give different results”.
Therefore, we directly answer RQ1, to avoid subjective inconsistencies and to develop research
that is comparable we only score IC disclosures as 0 for “no” or 1 for “yes”.
As a result, we use a disclosure index based on the prior literature consisting of six higher
and 81 lower IC categories (Abeysekera, 2006; Beattie and Thomson, 2007; Guthrie and Petty,
2000; Singh and Van der Zahn, 2009). Because this study examines voluntary disclosures and
the disclosures required when listing on NASDAQ, it is necessary to remove two lower IC
categories, being R&D expenses (20-F, item 5-c) and organisational structure of the firm (20-F,
item 4-c part 1). Therefore, the eventual disclosure index consists of 79 items (Table II).

4.2 Regression analysis methodology

As the second stage of our research we answer the following research question:
RQ2. Does the influence of IC disclosure in IPO prospectuses on post-issue stock prices
differ before and after the GFC?
and test the resultant hypothesis:
H0. There has not been a higher influence of IC disclosure in prospectuses on post-issue
stock performance before the GFC.
vs
H1. There has been a higher influence of IC disclosure in prospectuses on post-issue
stock performance after the GFC.
 JIC The elements The total amount
18,1 of IC index The items included of items included
Human Employee breakdown by age 28 items
resource Employee breakdown by seniority
capital Employee breakdown by gender
Employee breakdown by nationality
136 Employee breakdown by department
Employee breakdown by job function
Employee breakdown by level of education
Rate of employee turnover
Comments on changes in the number of employees
Comment on employee health and safety
Employee absenteeism rate
Downloaded by University of Colorado Boulder At 00:10 20 January 2017 (PT)

Comments on employee absentee rate

Discussion of employee interviews
Statements of policy on competency development
Description of competency development programs and activities
Education and training expenses
Education and training expenses by number of employees
Employee expenses by number of employees
Recruitment policies of the firm
Separate indication firm has a HRM department, division or function
Job rotation opportunities
Career opportunities
Remuneration and incentive systems
Pensions
Insurance policies
Statements of dependence on key personnel
Revenues to employee
Value added by employee
Customer Number of customers 14 items
capital Sales breakdown by customer
Annual sales per segment or product
Average purchase size by customer
Dependence on key customers
Description of customer involvement in firm’s operations
Description of customer relations
Education/training of customers
Value added per customer or segment
Absolute market share of the firm within its industry
Relative market share (not expressed as a percentage) of the firm
Market share breakdown by country, segment, or product
Repurchases by customers
Item category and item description
IT capital Description of investments in information technology 6 items
Reason(s) for investments in information technology
Description of existing information technology systems
Software assets held or developed by the firm
Description of intellectual technology facilities
Information technology expenses
Processes Information and communication within the company 9 items
capital Efforts related to the working environment
Working from home
Internal sharing of knowledge and information
External sharing of knowledge and information
Table II.
The structure of the
IC disclosure index (continued )
 The elements The total amount
Intellectual
of IC index The items included of items included capital
disclosure
Measure of internal processing failures
Measure of external processing failures
Discussion of fringe benefits and company social programs
Outline of environmental approvals, statements and policies
R&D capital Statements of policy, strategy and objectives of R&D activities 8 items 137
Ratio of R&D expenses to sales
R&D invested into basic research
R&D invested into product design and development
Details of future prospects regarding R&D
Details of existing company patents
Number of patents and licenses
Downloaded by University of Colorado Boulder At 00:10 20 January 2017 (PT)

Information on pending patents

Strategic Description of new production technology 14 items
capital Statements of corporate quality performance
Information about strategic alliances of the firm
Objectives and reason for strategic alliances
Comments on the effects of the strategic alliances
Description of the network of suppliers and distributors
Statements of image and brand
Corporate culture statements
Statements about best practises
Utilisation of energy, raw materials and other input goods
Investment in the environment
Description of community involvement
Information on corporate social responsibility and objective
Description of employee contracts
Total 79 items Table II.

The subsample of the companies that listed during the crisis is too small (three companies)
for testing, so the analysis is conducted only for companies listed before (51 companies) and
after the GFC (103 companies). The research applies a 500 trading day observation window.
The following procedures measure various buy-and-hold returns.
First, the raw buy-and-hold return for IPOj (Rj) is computed as:
Y
T  
RjT ¼ 1 þr jt 1 (1)
t¼1
where T is the daily trading day holding period (for main observations 500 days); andRjt the
return on IPO share j during the trading period t inclusive of cash dividends paid during the
trading period t (Singh and Van der Zahn, 2009).
The average buy-and-hold return for the trading period t (Rt) is computed as:
1X N
Rt ¼ R (2)
N j¼1
where N is the number of IPOs included in the portfolio.
Consequently, the mean market-adjusted buy-and-hold return (MBHAR) for the daily
trading period t (denoted as MBHART) is calculated based on the formula:
!
1X N YT   Y T
M BH ART ¼ 1 þr jt  ð1 þr mt Þ (3)
N j¼1 t¼1 t¼1

where rmt is the return on the market portfolio during the trading period t.
 JIC MBHAR measures the compounded buy-and-hold returns an investor could earn from a
18,1 portfolio of IPO stocks held till a given trading day T in excess of the buy-and-hold return
the investor could have earned if holding the market portfolio for the same trading day
period. For further multivariate regression analysis the dependent variable proxies denoted
BHAR1j , BHAR5j , BHAR30 270
j , BHARj , BHARj
500
are the 1, 5, 30, 250 and 500 trading days
compounded market-adjusted buy-and-hold return for the IPOj. In order to test our
138 hypotheses, five sets of data with different dependent variables were used as the bases for
further statistical tests.
This study uses multivariate regression analysis as the main statistical test of the study
to answer the second research question. We posit the following regression model:

BH ARDay
j ¼ l0 þl1  I CDiscj þl2  P 1 þl3  P 2 þl4  FSizej þ ej (4)
Downloaded by University of Colorado Boulder At 00:10 20 January 2017 (PT)

where BH ARDay j is the 1st, 5th, 30th, 270th and 500th trading days compounded market-
adjusted buy-and-hold return for the IPOj (thus we run the regression with five different
dependent variables); ICDiscj the number of IC items disclosed voluntarily in the prospectus
of IPOj divided by the total number of items from the 79-item index relevant to IPOj; P is
equal to 0 if the IPO took place during the pre-crisis period and equal to 1 if the IPO took
place after the GFC; FSizej the natural logarithm of companies’ assets as a control variable;
εj the error factors not included in the model.

5. Results
5.1 Results of content analysis
The question of data reliability is important when conducting content analysis research
(Dumay and Cai, 2015). It is necessary that content analysis coders understand what they
interpret, how they should categorise the items and how to examine unequal units of
analysis. In this case, two research students analysed the IPO prospectuses. We checked the
data reliability using Krippendorff’s α (Krippendorff, 2013, p. 278), a statistical measure of
the agreement achieved when coding a set of units of analysis in terms of the values of a
variable. Using an SPSS macro, we calculated an α coefficient equal to 0.83, which means
that data coding reliability is high (see Krippendorff, 2013, p. 278) and justifies using the
data in the subsequent regression model from a reliability perspective (Dumay and
Cai, 2015). Additionally, by establishing the reliability of the content analysis we also
develop internal validity because we seek to establish a causal relationship between IC
disclosure and share prices (Yin, 2014). Table III presents the content analysis results based
on the disclosure index.
As the results show, on average, companies disclose about 24 per cent of the total
information, which fits the IC disclosure index. From this result, we infer that companies
disclose a significant amount of non-financial information and thus IC information is
relevant as part of the process of influencing investors to buy the company’s shares, and
might be relevant to post-issue stock performance.
Prior to the GFC, the overall disclosure level does not have a particular trend. However,
in 2012 and 2013 companies on average disclose more IC information than during all other
years. Table IV presents the descriptive statistics for the disclosure index for the pre- and
post-crisis periods.
Table IV shows that the mean for the post-crisis period is much higher in comparison to
the pre-crisis period. A one-way ANOVA analysis confirms the descriptive statistics results,
and Table V presents the findings.
As Table V shows, there is a statistically significant difference between group means
with a 0.0002 ( p) significance level, which is below the 0.05 threshold.
 Downloaded by University of Colorado Boulder At 00:10 20 January 2017 (PT)

Year
Pre-crisis period Post-crisis period Overall disclosure average (%)
IC item 2002 2003 2004 2005 2006 2007 2009 2010 2011 2012 2013 2002-2013

Average for disclosure index items overall (%) 22 19 24 22 20 25 22 28 28 31 33 24

Average for human resource capital items (%) 6 4 6 6 4 6 5 7 7 7 8 6
Average for customer capital items (%) 6 5 5 5 4 3 4 5 6 7 6 5
Average for IT capital items (%) 2 2 3 2 2 1 3 3 3 3 4 2
Average for process capital items (%) 1 0 1 0 1 2 0 1 2 2 1 1
Average for R&D capital items (%) 4 5 4 4 4 7 4 6 4 5 6 5
Average for strategic capital items (%) 3 3 5 5 5 6 6 6 6 7 8 5
disclosure
Intellectual

139
capital

Average number of

disclosed (per cent)

disclosure Index items
Table III.
 JIC In general, the results are consistent with Wang et al. (2013) as there is a slight drop in IC
18,1 disclosure during the year 2009, and then there is an increase after the GFC. In this case,
we can reject H0 and abductively infer (see Krippendorff, 2013, p. 38) that, based on the
evidence, there is an increase in IC disclosure in prospectuses since the GFC. However, does
this influence the post-issue stock performance?

140 5.2 Regression analysis results

The proposed model (4) itself and all the variables are significant as detailed in Table VI.
The explanatory power of the model is from 39 per cent to almost 43 per cent for different
periods of analysis, inferring that disclosing IC information in IPO prospectuses explains
post-issue stock performance up to 43 per cent.
The model is significant for all periods of analysis according to the results of F-statistics.
We can see that based on our analysis the IC disclosure influence on post-issue stock
Downloaded by University of Colorado Boulder At 00:10 20 January 2017 (PT)

performance is positive for all observation windows – in the short term and long term.
It means that generally for the whole sample of technology companies listed on NASDAQ
the higher disclosure about IC positively influences the post-issue stock performance.
To answer the research question relating to the GFC we analyse the dummy variable P
(period). According to the regression analysis of the dummy variable we conclude that the
period is a significant factor that influences the market return. The β coefficient attained for

Pre-crisis period Post-crisis period

Mean (%) 14.936 Mean (%) 21.427

SE 0.988 SE 0.468
Median (%) 16 Median (%) 21
Mode (%) 13 Mode (%) 21
Table IV. SD 6.765 SD 4.733
Descriptive statistics Sample variance 45.800 Sample variance 22.424

Level n Mean Variance

Pre-crisis period 51 14.93617 45.80019
Post-crisis period 103 21.42718 22.42357
Table V. Source Ss df ms f p
One-way ANOVA: Between groups 1,359.781 1 1,359.781 45.80041 0.0002
pre-crisis and Within groups 4,394.012 153 29.68927
post-crisis period Total 5,753.793 154

Dependent Dependent Dependent Dependent Dependent

variable BHAR1j variable BHAR5j variable BHAR30
j variable BHAR270
j variable BHAR500
j

Intercept 1.0506 (1.1363) 1.0223 (1.1421) 1.1636 (1.2527) 1.2628 (1.0268) 1.3820 (0.0451)
Disclosure 0.0103 (2.9253)* 0.0198 (2.8321)* 0.0739 (2.7945)* 0.2793 (2.9931)* 0.3223 (2.9123)*
P 0.4415 (3.4023)** 0.2426 (3.4651)** 0.5043 (3.6936)** 0.3368 (4.0283)** 0.8214 (3.7103)**
FSize 0.0151 (1.1365) 0.0465 (1.3529) 0.0447 (1.6274) 0.0058 (2.8585)** 0.0034 (2.5396)**
Table VI. R2 0.3953 0.3892 0.4102 0.3987 0.4382
Regression analysis
Adj. R2 0.3742 0.3761 0.3897 0.3719 0.4104
results of the model
(4) with different F-stat 0.0000 0.0000 0.0000 0.0000 0.0000
dependent variables Note: *,**Significant at 5 and 10 per cent levels, respectively
 the dummy variable P is always positive (varying from 0.2426 to 0.8214 for the models with Intellectual
different dependent variables), which means that for companies listed after the GFC the IC capital
disclosure is a more significant factor in comparison to the pre-crisis period. The finding can disclosure
be explained by increased awareness among investors about IC in recent years and the lack
of trust in financial data that decreases during the times of, and after, financial crises.
Our dummy variable for firm size is significant on a long-term basis for the periods when
the dependent variable is the return in 250 and 500 days. In a short-term run (+1, +5 and 141
+30 days after IPO) the size of the company that reveals information about IC has no
influence. Previous studies did not take into consideration the difference between a short-
term and long-term run while evaluating market returns. But, in general, there are two
groups of studies – where size is considered as a statistically significant factor (Bozzolan
et al., 2003; Nurunnabi et al., 2011; Singh and Van der Zahn, 2009) and studies that proved
that the size of the company affects disclosure on IC (Bukh et al., 2005; Wallace et al., 1994;
Downloaded by University of Colorado Boulder At 00:10 20 January 2017 (PT)

Stanga, 1976). In our case we can conclude that, for bigger companies disclosure information
on IC can bring additional value, especially in a long run.
To analyse the relationship between the disclosure index and the post-issue stock
performance in more detail the companies were divided into quartiles, according to level of
disclosure (Table VII).
As mentioned above, MBHART reports returns for the IPO portfolio at key intervals
across the 500 trading day observation window. Figure 1 reports MBHART returns for
ICDiscj quartiles. The findings show a consistent positive association between the level of IC
disclosure in IPO prospectuses and market-adjusted buy-and-hold returns. As Figure 1

Quartile groups Number of companies Level of disclosure (mean, %) Table VII.

The division of the
1st quartile group 25 16 companies into
2nd quartile group 33 22 disclosure quartiles
3d quartile group 57 27 groups according to the
4th quartile group 39 32 level of IC disclosure

1
1st
2nd
0.8
3rd
4th
0.6
sample

0.4

0.2

Figure 1.
0 Interrelation between
IC disclosure (with
MBHAR1
MBHAR5
MBHAR30
MBHAR50
MBHAR100
MBHAR150
MBHAR175
MBHAR200
MBHAR225
MBHAR250
MBHAR275
MBHAR300
MBHAR325
MBHAR350
MBHAR375
MBHAR400
MBHAR425
MBHAR450
MBHAR475
MBHAR500

division of sample in
–0.2 four quartiles) and the
post-issue stock
performance
 JIC shows, the highest return is for the fourth quartile companies – companies that disclosed
18,1 more information on IC and the lowest return within 500 days is for the companies with the
lowest level of IC information disclosure. This result confirms the findings of the model that
IC disclosure has a positive effect on the post-issue stock performance. It is interesting,
however, that this effect becomes visible (obvious) after 100 days (approximately three
months) – before this period the fourth quartile (the companies that disclosed the highest
142 level of IC) showed worse results when compared to other companies and the overall sample.
This means that in a short-term run, disclosure of information about IC does not bring
additional value to companies because in a short-term run the investors are still oriented on
financial data and vivid financial results, while in a long run the companies from the fourth
quartile perform better the others greatly. In this case, we can also conclude that if the
managers are oriented to short-term results, disclosure of IC information will not bring much
value, but if they are interested in creating long-term value, voluntary disclosure of IC will
Downloaded by University of Colorado Boulder At 00:10 20 January 2017 (PT)

help them to show better financial results in comparison to other companies in the industry.
The results also support the argument that financial and non-financial information
reported in IPO prospectuses is captured in the initial IPO share price. Figure 1 shows that
investors pay slightly higher for IPO shares of companies that disclose more than the
average IC levels because the IPO prices at the time of the IPO are higher for companies of
second, third and fourth quartiles in comparison to the companies in the first quartile.
However, the difference in share prices is small and the short-term effect of disclosing
information on IC in IPO prospectuses is not very significant. What is more important is that
IC information has a long-term effect on share prices. The overall effect starts after 100 days
(approximately three months) and increases at the period of about 400 days after the IPO.
It means that from a value creation and value-based management perspective, those
investors who are interested in the long-term effect should focus their investment strategy
on companies that are eager to disclose more information on IC in their IPO prospectuses.

6. Conclusions and implications

6.1 Implications for practice
This research contributes to the IC disclosure literature by investigating how the GFC may
have influenced IC disclosure to reduce information asymmetry. By determining that IPO
prospectuses continue to contain significant IC information we argue that prospectuses are
a valuable source of IC information. We recommend to managers that higher level IC
disclosure can help drive firm value by having a positive influence on future share prices
especially in a long run.
From an information asymmetry and agency theory perspective, this has an impact on
the nature of the contracts managers have with the owners of the companies placing the
IPOs (Deloitte, 2014; Hearn, 2013; Yablon and Hill, 2000). In the case of many IPO companies
the senior managers who control the disclosure of IC information may also be substantial
shareholders pre and post the IPO and their shareholdings are likely to increase upon the
successful completion of an IPO. This situation tends to blur the delineation between
managers (agents) and owners (principles) and subsequently the agency relationship.
Considering that these managers will most likely need to wait a considerable amount of time
before they can sell their shares due to vesting, it is in their best interest from a
self-interested wealth maximisation perspective to ensure their shares increase in value over
the long run. We see the disclosure of IC information as one way that managers can reduce
information asymmetry to the market and to convince future investors that they have the
long-term interests of the company in mind.
However, we caution that disclosing IC information to investors is not the panacea for
increased post-IPO share performance. Rather, we argue that managers who genuinely
believe IC contributes to value creation are able to reduce IC information asymmetry to tell
 that story through disclosures in their prospectuses. But at the same time, we argue that Intellectual
while disclosing IC indicates the likelihood of post-issue stock performance, managers must capital
also back this up by putting IC into practice to ensure the long-term efficient performance of disclosure
their companies. This finding also adds weight to the thesis that investors are interested in
IC information and reward companies that respond to investor demands for relevant non-
financial information through higher share prices.
Similarly, the above implications are relevant for oIRW. However, the IIRC advocates 143
issuing an integrated report on an annual basis, which might then relegate some of the
information about IC and the other capitals as irrelevant from an investor perspective
because by the time the integrated report is released the forward-looking information
becomes backwards looking (see Dumay and Tull, 2007). Hence the challenge for managers
is to ensure that the forward-looking information in an integrated report remains relevant
for at least some time after releasing the report – the information must remain relevant to
Downloaded by University of Colorado Boulder At 00:10 20 January 2017 (PT)

the providers of financial capital because, unlike a prospectus, an integrated report does not
have an expiry date (Dumay, 2016). Additionally, even though information about IC and
other capitals is included in an integrated report, it does not automatically translate into
increased share prices, because managers still need to put their forward-looking
proclamations into action and deliver the expected or above returns on invested financial
capital. Reporting is not a panacea.

6.2 Implications for research

In this paper, we analyse the influence of reducing information asymmetry through IC
disclosure in IPO prospectuses on post-issue stock performance for the short and long run.
There are different information sources where companies can disclose IC and traditionally
researchers use annual, IC, sustainability, corporate social responsibility and integrated
reports. In previous research, annual reports are often used as the main source of
information about IC, which is now being openly critiqued (Dumay and Cai, 2014).
On the contrary, we argue that the IPO prospectuses contain valuable IC information
because they feature significant amounts of forward-looking non-financial information
about the company’s development. Additionally, the main reason for issuing an IPO
prospectus is to attract money from potential investors. Therefore, we argue that IPOs are a
more relevant source of IC disclosure from the perspective of impacting share prices and
potentially WACC.
From our research we argue that the more managers reduce IC information asymmetry,
the more potential there is for attracting financial resources from the market, especially in
the long term. Additionally, we question the transparency and immediacy of disclosures and
reports as most of the information released is not designed to influence share prices directly
as these other disclosures and reports contain considerable amounts of backwards-looking
information. Therefore, researchers are encouraged to look at more relevant and immediate
ways that companies disclose information through the market. For example, in many
markets, stock exchanges require companies to disclose material information to the market,
especially if that information is potentially price sensitive (see Dumay and Tull, 2007).
Therefore, we argue these kinds of material disclosures are more important than annual
and/or other periodical reports such as oIRW, and warrant further research. Our results
confirm that for technology companies, the more they reduce IC information asymmetry, the
more likely they will have better post-issue stock performance results, especially from a
long-term perspective, meaning that the forward-looking information disclosed in IPO
prospectuses creates value for managers and their companies.
Our results are also relevant to scholars investigating the potential impact of oIRW.
As discussed above, if IC and non-financial disclosures contained in an integrated report are
forward-looking, and have not been disclosed through other communication channels, there
 JIC is the possibility that o IRW could have value relevance to a firm. However, should a firm
18,1 only disclose backwards looking information about IC and the other capitals, then we argue
that this will have little, if any, impact on firm value because the market will have already
priced in this information (Dumay and Tull, 2007; Dumay, 2016). Thus scholars
investigating oIRW need to assess whether the information about IC and the related
capitals is forward-looking and whether it reveals previously secret or unknown
144 information that has the potential to convince providers of financial capital that the firm is
managing its risks and opportunities effectively. If researchers do not make the distinction
between providing information (reporting) and disclosure then findings about oIRW and
its impact may be erroneous (see Dumay, 2016).
This paper also contributes to knowledge about the methodology applied. To analyse the
IPO prospectuses, we apply a two-stage methodology: content analysis and regression
analysis. This is required because the research needs to ensure the data from the content
Downloaded by University of Colorado Boulder At 00:10 20 January 2017 (PT)

analysis is reliable before passing the data into the regression analysis (Krippendorff, 2013).
To check the data reliability we calculated Krippendorff’s α coefficient obtaining a
0.83 confirming data reliability so we could conduct further analysis. Additionally, by
establishing the reliability of the content analysis we also develop internal validity because
we seek to establish a causal relationship between IC disclosure and share prices (Yin, 2014).
This two-stage approach to content analysis, where rigorous results from content analysis
intertwine with other data “from the worlds of others and other phenomenon”, is uncommon
in the IC disclosure literature (Dumay and Cai, 2015, p. 144). As such, this paper presents a
more rigorous approach to content analysis based IC disclosure studies that intertwine
with market data.

6.3 Implications for policy

As indicted earlier, there are few non-financial disclosures required in the IPOs we use in our
analysis. However, the evidence shows how increases in IC disclosures lead to higher stock
valuations, which signals that these companies are performing better over the long run,
otherwise their stock price performance would be lower. This does not mean that just
disclosing more IC causes higher valuation, but rather that managers are aware that IC
drives their business models and subsequent market valuations. By managing their IC they
may create economic value.
The implication for policy is that if more companies are required to disclose IC related
non-financial information, then this will create increased IC awareness and a better
understanding of how to use IC to create economic value. There is no guarantee that
creating IC awareness will eventually cause managers to create more profitable companies.
However, we argue that our results show that managers who are aware of how IC is needed
to create value and align this with the agency relationship are likely to reduce IC information
asymmetry, which in turn attracts investors and ultimately is rewarded by higher share
prices through higher returns.

6.4 Limitations
The main limitation of this study is that, regardless of the rigour of applying our research
methodology, all a posteriori approaches to content analysis utilising a predefined
disclosure index can be criticised for using predetermined categories rather than serve the
true purpose of content analysis, which is to “find the hidden meanings of texts”
(Krippendorff, 2013, pp. 41-2). However, in this case, IPO prospectuses have a specific
purpose, which is to influence investor decisions. Therefore, the meaning of an IPO
prospectus is overt and not hidden. Using a disclosure index helps reveal known
information categories. As such, hidden categories might not be exposed.
 Additionally, this study does not use a quality IC disclosure measure because of the Intellectual
increased subjectivity that including such a measure would create. However, including a capital
quality measure “might reveal new insights that may otherwise have gone unnoticed” disclosure
(Dumay and Cai, 2015, p. 139). There is no standard quality measure recognised in the IC
disclosure literature so this opens up an additional research opportunity to investigate the
impact of using different quality IC disclosure measures on the same data set to understand
whether they reveal significantly different results. 145

Note
1. The list of technology companies listed on NASDAQ can be found on: www.nasdaq.com/
screening/companies-by-industry.aspx?industry=Technology
Downloaded by University of Colorado Boulder At 00:10 20 January 2017 (PT)

References
Abdolmohammadi, M.J. (2005), “Intellectual capital disclosure and market capitalization”, Journal of
Intellectual Capital, Vol. 6 No. 3, pp. 397-416.
Abeysekera, I. (2006), “The project of intellectual capital disclosure: researching the research”,
Journal of Intellectual Capital, Vol. 7 No. 1, pp. 61-77.
Abeysekera, I. (2013), “A template for integrated reporting”, Journal of Intellectual Capital, Vol. 14 No. 2,
pp. 227-245.
Abeysekera, I. (2014), “Signalling external capital disclosure in annual reports”, Corporate Ownership
and Control, Vol. 11 No. 4, pp. 193-202.
Adams, S. and Simnett, R. (2011), “Integrated reporting: an opportunity for Australia’s not-for-profit
sector”, Australian Accounting Review, Vol. 21 No. 3, pp. 292-301.
Aharony, J., Lin, C.J. and Loeb, M.P. (1993), “Initial public offerings, accounting choices, and earnings
management”, Contemporary Accounting Research, Vol. 10 No. 1, pp. 61-81.
Ahmed Haji, A. and Mohd Ghazali, N.A. (2012), “Intellectual capital disclosure trends: some Malaysian
evidence”, Journal of Intellectual Capital, Vol. 13 No. 3, pp. 377-397.
An, Y., Davey, H. and Eggleton, I.R.C. (2011), “Towards a comprehensive theoretical framework for
voluntary IC disclosure”, Journal of Intellectual Capital, Vol. 12 No. 4, pp. 571-585.
An, Y.A., Harun, H.B. and Sharma, U. (2014), “Trends of voluntary IC disclosure in Chinese firms”,
Corporate Ownership and Control, Vol. 11 No. 3, pp. 122-129.
Ang, J.S. and Brau, J.C. (2002), “Firm transparency and the costs of going public”, Journal of Financial
Research, Vol. 25 No. 1, pp. 1-17.
Arnold, P. (2009), “Global financial crisis: the challenge to accounting research”, Accounting,
Organizations and Society, Vol. 34 Nos 6‐7, pp. 803-809.
Atkins, J. and Maroun, W. (2015), “Integrated reporting in South Africa in 2012: perspectives from
South African institutional investors”, Meditari Accountancy Research, Vol. 23 No. 2, pp. 197-221.
Atkins, J.F., Solomon, A., Norton, S. and Joseph, N.L. (2015), “The emergence of integrated private
reporting”, Meditari Accountancy Research, Vol. 23 No. 1, pp. 28-61.
Barth, M.E. and Landsman, W.R. (2010), “How did financial reporting contribute to the financial
crisis?”, European Accounting Review, Vol. 19 No. 3, pp. 399-423.
Beattie, V. (1999), Business Reporting: The Inevitable Change, Institute of Chartered Accountants of
Scotland, Edinburgh.
Beattie, V. and Thomson, S.J. (2007), “Lifting the lid on the use of content analysis to investigate
intellectual capital disclosures”, Accounting Forum, Vol. 31 No. 2, pp. 129-163.
Bismuth, A. and Tojo, Y. (2008), “Creating value from intellectual assets”, Journal of Intellectual Capital,
Vol. 9 No. 2, pp. 228-245.
 JIC Bozzolan, S., Favotto, F. and Ricceri, F. (2003), “Italian annual intellectual capital disclosure:
18,1 an empirical analysis”, Journal of Intellectual Capital, Vol. 4 No. 4, pp. 543-558.
Branswijck, D. and Everaert, P. (2011), “Intellectual capital disclosure commitment: a myth or reality?”,
in Turner, G. and Minnone, C. (Eds), Proceedings of the 3rd European Conference on Intellectual
Capital, University of Nicosia, Academic Publishing International Limited, pp. 501-508.
Bui, Y. (2011), “The issue of transparency in the financial statements of commercial banks: empirical
146 evidence after the global financial crisis”, Asian Journal of Finance & Accounting, Vol. 3 No. 1,
pp. 1-25.
Bukh, P.N., Nielsen, C., Gormsen, P. and Mouritsen, J. (2005), “Disclosure of information on intellectual
capital in Danish IPO prospectuses”, Accounting, Auditing & Accountability Journal, Vol. 18
No. 6, pp. 713-732.
Bushee, B. and Noe, C. (2000), “Corporate disclosure practices, institutional investors and stock return
Downloaded by University of Colorado Boulder At 00:10 20 January 2017 (PT)

volatility”, Journal of Accounting Research, Vol. 38, Supplement, pp. 171-202, available at: www.
jstor.org/stable/2672914?seq=1#page_scan_tab_contents
Claessens, S., Kose, M.A. and Terrones, M.E. (2010), “The global financial crisis: how similar?
How different? How costly?”, Journal of Asian Economics, Vol. 21 No. 3, pp. 247-264.
Cordazzo, M. (2007), “Intangibles and Italian IPO prospectuses: a disclosure analysis”, Journal of
Intellectual Capital, Vol. 8 No. 2, pp. 288-305.
Cumby, J. and Conrod, J. (2001), “Non-financial performance measures in the Canadian biotechnology
industry”, Journal of Intellectual Capital, Vol. 2 No. 3, pp. 261-272.
De Villiers, C., Rinaldi, L. and Unerman, J. (2014), “Integrated reporting: insights, gaps and an agenda
for future research”, Accounting, Auditing & Accountability Journal, Vol. 27 No. 7, pp. 1042-1067.
Deloitte Report (2014), “Getting it right from the start: directors’ remuneration and board structures at
IPO”, pp. 1-3, available at: www2.deloitte.com/content/dam/Deloitte/uk/Documents/tax/deloitte-
uk-tax-overview-intro-main-findings-april-2014.pdf (accessed 15 March 2016).
Dumay, J. (2012), “Grand theories as barriers to using IC concepts”, Journal of Intellectual Capital,
Vol. 13 No. 1, pp. 4-15.
Dumay, J. (2014a), “15 years of the Journal of Intellectual Capital and counting: a manifesto for
transformational IC research”, Journal of Intellectual Capital, Vol. 15 No. 1, pp. 2-37.
Dumay, J. (2014b), “Reflections on interdisciplinary accounting research: the state of the art of
intellectual capital”, Accounting, Auditing & Accountability Journal, Vol. 27 No. 8, pp. 1257-1264.
Dumay, J. (2016), “A critical reflection on the future of intellectual capital: from reporting to disclosure”,
Journal of Intellectual Capital, Vol. 17 No. 1, pp. 168-184.
Dumay, J. and Cai, L. (2014), “A review and critique of content analysis as a methodology for inquiring
into IC disclosure”, Journal of Intellectual Capital, Vol. 15 No. 2, pp. 264-290.
Dumay, J. and Cai, L. (2015), “Using content analysis as a research methodology for investigating
intellectual capital disclosure”, Journal of Intellectual Capital, Vol. 16 No. 1, pp. 121-155.
Dumay, J. and Tull, J. (2007), “Intellectual capital disclosure and price sensitive Australian stock
exchange announcements”, Journal of Intellectual Capital, Vol. 8 No. 2, pp. 236-255.
Dumay, J., Bernardi, C., Guthrie, J. and Demartini, P. (2016), “Integrated reporting: a structured
literature review”, Accounting Forum, Vol. 40 No. 3, pp. 166-185.
Farooq, O. and Nielsen, C. (2014), “Improving the information environment for analysts: which
intellectual capital disclosures matter the most?”, Journal of Intellectual Capital, Vol. 15 No. 1,
pp. 142-156.
Fidrmuc, J. and Korhonen, I. (2010), “The impact of the global financial crisis on business cycles in
Asian emerging economies”, Journal of Asian Economies, Vol. 21 No. 3, pp. 293-303.
Garcı´a-Meca, E. (2005), “Bridging the gap between disclosure and use of intellectual capital
information”, Journal of Intellectual Capital, Vol. 6 No. 3, pp. 427-440.
 Global Reporting Initiative (2013), G4 Sustainability Reporting Guidelines: Reporting Principles and Intellectual
Standard Disclosures, Global Reporting Initiative, Amsterdam. capital
Guthrie, J. and Petty, R. (2000), “Intellectual capital: Australian annual reporting practices”, Journal of disclosure
Intellectual Capital, Vol. 1 No. 3, pp. 241-251.
Healy, P.M. and Palepu, K.G. (2001), “Information asymmetry, corporate disclosure, and the capital
markets: a review of the empirical disclosure literature”, Journal of Accounting and Economics,
Vol. 31 No. 1, pp. 405-440.
147
Hearn, B. (2013), “The determinants of director remuneration, executive tenure and individual
executive disclosure in North African IPO firms”, Research in International Business and
Finance, Vol. 27 No. 1, pp. 162-182.
Ienciu, N.M. (2014), “Intellectual capital disclosure from literature perspective”, International Journal of
Learning and Intellectual Capital, Vol. 11 No. 2, pp. 166-183.
International Integrated Reporting Council (IIRC) (2013), “The international o IRW framework”.
Downloaded by University of Colorado Boulder At 00:10 20 January 2017 (PT)

International Integrated Reporting Council, London.

Jenkins, E.L. (1994), “Users’ critical external reporting needs are not being met”, Journal of
Accountancy, Vol. 177 No. 5, pp. 77-82.
Jenkinson, T. and Ljungquist, A. (2001), Going Public: The Theory and Evidence of How Companies
Raise Equity Finance, Oxford University Press, Oxford.
Johnson, M., Kasznik, R. and Nelson, K. (2001), “Disclosure of forward-looking information by
high-technology firms”, Journal of Accounting Research, Vol. 39 No. 2, pp. 297-327.
Krippendorff, K. (2013), Content Analysis: An Introduction to its Methodology, Sage, Los Angeles, CA.
La Rosa, F.A. and Liberatore, G. (2014), “Biopharmaceutical and chemical firms’ R&D disclosure, and
cost of equity: the impact of the regulatory regime”, European Management Journal, Vol. 32
No. 5, pp. 806-820.
Leuz, C. and Verrecchia, R. (2000), “The economic consequences of increased disclosure”, Journal of
Accounting Research, Vol. 38, Supplement, pp. 91-124, available at: www.jstor.org/stable/2672
910?seq=1#page_scan_tab_contents
Loughran, T. and Ritter, J. (2004), “Why has IPO underpricing changed over time?”, Financial
Management, Vol. 33 No. 3, pp. 5-37.
Marr, B. (2003), “Why do firms measure their intellectual capital?”, Journal of Intellectual Capital, Vol. 4
No. 4, pp. 441-464.
Mather, P., Ramsay, A. and Steen, A. (2000), “The use and representational faithfulness of graphs in
Australian IPO prospectuses”, Accounting, Auditing and Accountability Journal, Vol. 13 No. 1,
pp. 65-83.
Mia, P. and Al-Mamun, A. (2011), “Corporate social disclosure during the global financial crisis”,
International Journal of Economics and Finance, Vol. 3 No. 6, pp. 174-187.
Mouritsen, J., Larsen, H.T. and Bukh, P.N. (2001), “Valuing the future: intellectual capital supplements
at Skandia”, Accounting, Auditing & Accountability Journal, Vol. 14 No. 4, pp. 399-422.
Mouritsen, J., Bukh, P.N., Flagstad, K., Thorbjørnsen, S., Johansen, M.R., Kotnis, S., Larsen, H.T.,
Nielsen, C., Kjærgaard, I., Krag, L., Jeppesen, G., Haisler, J. and Stakemann, B. (2003), Intellectual
Capital Statements – The New Guideline, Danish Ministry of Science, Technology and Innovation
(DMSTI), Copenhagen.
Napoli, F. (2014), “Management decisions regarding the voluntary disclosure of information: the
problem of the recognition of the firm’s intellectual capital and that of lenders’ information
needs”, Corporate Ownership and Control, Vol. 11 No. 2, pp. 251-263.
Nurunnabi, M., Hossain, M. and Hossain, M. (2011), “Intellectual capital reporting in a South Asian
country: evidence from Bangladesh”, Journal of Human Resource Costing & Accounting, Vol. 15
No. 3, pp. 196-233.
Rashid, A.B.A., Ibrahim, M.K., Othman, R. and See, K.F. (2012), “IC disclosures in IPO prospectuses:
evidence from Malaysia”, Journal of Intellectual Capital, Vol. 13 No. 1, pp. 57-80.
 JIC Rimmel, G., Nielsen, C. and Yosano, T. (2009), “Intellectual capital disclosures in Japanese IPO
18,1 prospectuses”, Journal of Human Resource Costing and Accounting, Vol. 13 No. 4, pp. 316-337.
Schrand, C. and Verrecchia, R.E. (2004), Disclosure Choice and Cost of Capital: Evidence from
Underpricing in Initial Public Offerings, The Wharton School, University of Pennsylvania,
Philadelphia, PA.
Singh, I. and Van der Zahn, J.-l.W. (2009), “Intellectual capital prospectus disclosure and post-issue
stock performance”, Journal of Intellectual Capital, Vol. 10 No. 3, pp. 425-450.
148
Skandia (1994), “Visualising intellectual capital at Skandia: supplement to Skandia’s 1994 annual
report”, Skandia Insurance Company Ltd, Stockholm.
Stanga, K. (1976), “Disclosure in published annual reports”, Financial Management, Vol. 5 No. 4,
pp. 42-52.
Stent, W. and Dowler, T. (2015), “Early assessments of the gap between integrated reporting and
current corporate reporting”, Meditari Accountancy Research, Vol. 23 No. 1, pp. 92-117.
Downloaded by University of Colorado Boulder At 00:10 20 January 2017 (PT)

Swartz, G.E., Swartz, N.P. and Firer, S. (2006), “An empirical examination of the value relevance of
intellectual capital using the Ohlson (1995) valuation model”, Meditari Accountancy Research,
Vol. 14 No. 2, pp. 67-81.
United Nations Global Compact (UNGC) (2009), “Overview of the UN Global Compact”, available at:
www.unglobalcompact.org/AbouttheGC/index.html (accessed 25 March 2009).
Wallace, R.S.O., Naser, K. and Mora, A. (1994), “The relationship between the comprehensiveness of
corporate annual reports and firm characteristics in Spain”, Accounting and Business Research,
Vol. 25 No. 97, pp. 41-53.
Wang, Z., Ali, M.J. and Al-Akra, M. (2013), “Value relevance of voluntary disclosure and the global
financial crisis: evidence from China”, Managerial Auditing Journal, Vol. 28 No. 5, pp. 444-468.
Yablon, Ch.M. and Hill, J.G. (2000), “Timing corporate disclosures to maximize performance-based
remuneration: a case of misaligned incentives?”, Wake Forest Law Review, Vol. 35, pp. 83-91,
available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=224146
Yin, R.K. (2014), Case Study Research: Design and Methods, Sage, Los Angeles, CA.

Further reading
Garanina, T. and Dumay, J. (2014), “Intellectual capital disclosure impact in IPOs pre and post GFC:
evidence from NASDAQ”, in Rooney, J. and Murthy, V. (Eds), Proceedings of 11th International
Conference on Intellectual Capital, Knowledge Management and Organisational Learning, Sydney.

Corresponding author
Tatiana Garanina can be contacted at: garanina@gsom.pu.ru

For instructions on how to order reprints of this article, please visit our website:
www.emeraldgrouppublishing.com/licensing/reprints.htm
Or contact us for further details: permissions@emeraldinsight.com
 This article has been cited by:

1. LombardiRosa Rosa Lombardi rosa.lombardi@uniroma1.it DumayJohn John Dumay

john.dumay@mq.edu.au Department of Law and Economics of Productive Activities, Sapienza
University of Rome, Rome, Italy Department of Accounting and Corporate Governance, Macquarie
University, Sydney, Australia . 2017. Guest editorial. Journal of Intellectual Capital 18:1, 2-8.
[Citation] [Full Text] [PDF]
2. CuozzoBenedetta Benedetta Cuozzo b.cuozzo@unicas.it DumayJohn John Dumay
john.dumay@mq.edu.au PalmaccioMatteo Matteo Palmaccio m.palmaccio@unicas.it
LombardiRosa Rosa Lombardi rosa.lombardi@uniroma1.it Department of Economics and Law,
Universita degli Studi di Cassino e del Lazio Meridionale, Cassino, Italy Department of Accounting
and Corporate Governance, Macquarie University, Sydney, Australia Department of Law and
Economics of Productive Activities, Sapienza University of Rome, Rome, Italy . 2017. Intellectual
Downloaded by University of Colorado Boulder At 00:10 20 January 2017 (PT)

capital disclosure: a structured literature review. Journal of Intellectual Capital 18:1, 9-28. [Abstract]
[Full Text] [PDF]