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

The value relevance of intellectual capital disclosure: empirical evidence from Kuwait PurposeDrawing 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/approachThe 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.FindingsThe 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 implicationsGiven 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/valueThis 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Regulation and Compliance Emerald Publishing

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

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1358-1988
D.O.I.
10.1108/JFRC-06-2016-0053
Publisher site
See Article on Publisher Site

Abstract

PurposeDrawing 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/approachThe 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.FindingsThe 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 implicationsGiven 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/valueThis 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.

Journal

Journal of Financial Regulation and ComplianceEmerald Publishing

Published: Feb 13, 2017

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