Value-Relevance of Intangibles and Intellectual Capital Disclosure on Market-to-Book Value Ratio: A Longitudinal Multilevel Regression of German DAX Firms

Abstract

Despite the importance of intellectual capital (IC), accounting standards are conservative concerning the capitalization of IC as assets. Thus, intangible-intensive firms disclose additional IC information, e.g. in their annual reports. The market-to-book value (MBV) ratio is regarded as an indi¬cator for IC not included in a firm’s balance sheet. If IC disclosure is value-relevant, we might assume that the level of IC disclosure impacts a firm’s MBV ratio. Thus, we empirically analyze the relations between firms’ IC disclosure and their MBV ratio for 60 German listed firms over a five year period with multilevel regression and path analysis. On a firm level, we find no evidence for a significant influence of IC disclosure on the MBV ratio. Instead, the MBV ratio level is influenced by the level of intangibles, R&D intensity, return and stock market index. Thus, standard-setting authorities should develop guidelines to improve the quality and value-relevance of IC disclosure.