Towards improved information disclosure on intellectual capital

Abstract

Information disclosure to capital markets is based on and evolves around accounting based financial information. As the drivers of future earnings are becoming increasingly reliant on intangible assets that are not captured by the accounting framework, the value relevance of financial information has been decreasing for the past decades. This paper reviews recent approaches aiming to extend or complement the accounting framework to incorporate intellectual capital into business reporting, both from a financial and a non-financial perspective. An alternative approach is presented reporting on the contribution of intangible as well as tangible resources to value creation. This approach is based on the needs of the users of business reporting for assessing the firm's future earnings potential rather than attempting to amend the transactions-based accounting system, apparently unsuitable for reporting on intellectual capital. Finally, the paper offers recommendations for further research on intellectual capital disclosure to capital markets and for companies aspiring to improve their communication with capital markets regarding their intellectual capital.