DETERMINANTS OF INTELLECTUAL CAPITAL DISCLOSURE PRACTICES OF INDIAN COMPANIES

Abstract

Numerous academicians, business professionals, and consultants identified 'intellectual assets/capital' as the main factor of value creation in the present knowledge economy. Companies especially in the service sectors require maximum amount of this type of capital to maintain their existence in the competitive market, whereas empirical results show that companies disclose lesser amount of intellectual capital related information in the annual reports. In this study, we examine the factors that determine the proportion of intellectual capital disclosure in the annual reports. For the purpose of the study 30 Indian knowledge-intensive companies (software, pharmaceuticals, and finance) are selected (on the basis of highest market capitalisation) for the period 2009-2012. Content analysis of annual reports is done to prepare intellectual capital disclosure (ICD) index and efficiency of intellectual capital is measured through VAIC. Multiple regression analysis is applied to examine the relationship between dependent and independent variables. Empirical results show that audit committee's size, age, and firm size have positive relation with intellectual capital disclosure but VAIC, profitability, and leverage have negative relationship with intellectual capital disclosure. This negative association between intellectual capital efficiency and disclosure suggests that intellectually efficient companies disclose less information in the financial statement for fear of losing competitive advantage. The present study is the first study in the Indian context that examines the determinant(s) of intellectual capital disclosure. However, this study is confined to 30 Indian knowledge companies for the period 2009-2012.