The value relevance of voluntary disclosure of intangibles : evidence from East Asia

• Main Author: Mohamad Ariff, Akmalia
• Other Authors: Cahan, Steven
• Published: ResearchSpace@Auckland 2011
• Online Access: http://hdl.handle.net/2292/6638

While the traditional accounting model is widely believed to inadequately account for intangibles, managers can voluntarily provide information about them. Based on a sample of companies from East Asia, this thesis investigates the role of voluntary non-financial disclosure about intangibles in a valuation context. Given the proprietary nature of intangibles, the value of the information may not be perceived to be useful by investors. First, this thesis examines the relationship between voluntary disclosure of intangibles and market value. Consistent with the capital market incentives argument, the evidence shows that voluntary disclosure of intangibles contains value relevant information. Second, this thesis investigates the effect of managerial ownership on the value relevance of voluntary disclosure of intangibles. The results show that the value relevance of intangibles is lower in companies with high managerial ownership, supporting the view that high managerial ownership is associated with greater levels of entrenchment. Third, this thesis analyzes the effect of institutional environments on the disclosure of information about intangibles and the subsequent valuation of that information. At comparable levels of managerial ownership, the value relevance of intangibles is greater for companies in countries that have strong institutional environments. This evidence is consistent with strong legal institutions having a positive effect on financial reporting and corporate valuation. Overall, the findings suggest that a strategy of voluntary disclosure could be beneficial in resolving information asymmetry surrounding intangibles. In addition, the effectiveness of voluntary disclosure of intangibles is conditional on the internal corporate governance infrastructure and the external legal environment.