Effects of intellectual capital information disclosed in annual reports on market capitalization: Evidence from Bursa Malaysia

Abstract

Purpose

This paper aims to examine the effects of intellectual capital (IC) disclosure in the annual reports of listed companies in Bursa Malaysia (BM) on their market capitalization (MCAP).

Design/methodology/approach

The paper uses secondary data for listed companies on BM for the years 2002 and 2006. A disclosure index was used to measure the extent of IC information disclosed in the annual reports. The MCAP data were obtained from the Bloomberg database. The data were analyzed using correlation and regression analyses.

Findings

The paper finds that the extent of IC disclosure by Malaysian‐listed companies has a positive significant effect on their MCAP. In addition, the paper found that there is significant positive impact of the control variables (i.e. book value, net profit, firm size and leverage) on the MCAP.

Research limitations/implications

Although the paper was focused on the IC information and MCAP data for two years (i.e. 2002 and 2006), it provides empirical evidence that IC disclosure does affect the MCAP of companies. Hence, it means that the IC information is picked up by the market. Future research may incorporate more control variables and years.

Practical implications

The findings provide empirical evidence that IC information disclosed by the Malaysian‐listed companies positively affects their MCAP. These findings can be considered to be useful for these companies and work as a signal towards the need for more IC disclosure. In addition, the findings could be useful for the regulatory bodies, e.g. the Malaysian Accounting Standards Board and BM, perhaps to develop guidelines on IC disclosure to enhance transparency and increase confidence in the capital market.

Originality/value

The paper is considered the first empirical study to examine the effects of IC disclosure in the annual reports of Malaysian‐listed companies on their MCAP.

Citation

Abdulrahman Anam, O., Hamid Fatima, A. and Rashid Hafiz Majdi, A. (2011), "Effects of intellectual capital information disclosed in annual reports on market capitalization: Evidence from Bursa Malaysia", Journal of Human Resource Costing & Accounting, Vol. 15 No. 2, pp. 85-101. https://doi.org/10.1108/14013381111157328