Academic journal article Journal of Business Strategies

An Examination of the Impact of Firm Size and Age on Managerial Disclosure of Intellectual Capital by High-Tech Companies

Academic journal article Journal of Business Strategies

An Examination of the Impact of Firm Size and Age on Managerial Disclosure of Intellectual Capital by High-Tech Companies

Article excerpt


A sample of 143 high-technology firms was examined to determine if there were inverse relationships between the size and age of companies and their level of intellectual capital disclosure. Weak inverse relationships were found between number of employees and level of disclosure and between total assets and level of disclosure. There was, however, a significant inverse relationship between firm age and level of disclosure. Multivariate regression provided support that firm age was a significant predictor of level of intellectual capital disclosure. It appears that young companies use increased disclosure to signal to the market their real value and prospects.


In today's knowledge-based economy, a significant source of wealth and competitive advantage is derived from the creation and use of intangible assets and intellectual capital (Canibano, Garcia-Ayuso, & Sanchez, 2000; Hall, 1992). In 2006, the World Bank estimated that intangible assets comprise 78% of worldwide assets and 80% of assets in high-income countries (World Bank, 2006). The terms "intangible assets" and "intellectual capital" have been used interchangeably and include patents, copyrights, trade secrets, processes, employee know-how, procedures, corporate culture, charismatic leadership, and customer loyalty (Andriessen, 2004; Lev, 2001). Intellectual capital is difficult for other firms to replicate (Barney, 1991; Chakraborty, 1997; Dierickx & Cool, 1989; Peteraf, 1993) because it is internally generated and has its own unique path to development (Clulow, Gerstman, & Barry, 2003). Additionally, the legal right to the exclusive use of particular knowledge such as patents, copyrights, and trade secrets make those intangible assets an invaluable resource to the firm (Porter, 1980).

It is expected that firms with superior intellectual capital will outperform their competitors (McGrath, Tsai, Venkataraman, & MacMillan, 1996; Wiklund & Shepherd, 2003). Hope and Hope (1998) concluded that more than half of the value created by a firm in today's economy comes from the management of the firm's intellectual capital rather than physical assets (Guthrie & Yongvanich, 2004).

The most important assets of a firm in a knowledge-intensive industry are often internally-generated intangible assets which are not reported on the traditional balance sheet under U.S. Generally Accepted Accounting Principles or the International Financial Reporting Standards (Basu & Waymire, 2008; Canibano et al., 2000; Financial Accounting Standards Board [FASB], 2001a; International Accounting Standards Committee [IASC], 1998). In November, 2006, the CEOs of the world's six largest audit firms released a document in which they stated:

Clearly, a range of 'intangibles' that are not well measured, or not measured at all, under current accounting conventions are driving company performance. Investors and other stakeholders in business information want to know what those intangibles are, and how they might plausibly affect how businesses perform in the future. (DiPiazza, McDonnell, Parrett, Rake, Samyn, & Turley, 2006, p. 16).

The current financial accounting standards relating to internally-generated intangible assets create numerous challenges for companies operating in knowledge-intensive industries. For example, stock price volatility can result from investors having difficulty in accurately estimating future payoffs and risk (Garcia-Ayuso, 2003). With insiders having more information about intangibles than outsiders, it may increase the risk of insider trading gains (Aboody & Lev, 2000; Lev, 2001). Still another problem is the increased cost of capital (Botosan, 2006, 1997; Sengupta, 1998; Shi, 2003).

In an effort to overcome or mitigate the challenges caused by current accounting standards, companies may voluntarily disclose information about their intellectual capital (Lundholm & Van Winkle, 2006). …

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