Reporting intangible assets: voluntary disclosure practices of the top emerging market companies

The purpose of financial reporting is to provide information that is useful for decision making. Recently,however, there has been a systematic decline in the usefulness of such information. Indeed, the currentreporting model seems to be no longer sufficient mainly due to the fact that it ignores many of the nonfinancialintangible factors which are increasingly becoming important in determining corporate valueand performance. That is, there is a need for the traditional reporting model to be modified or at leastbroadened to reflect Intangible Assets (IA) in order to enhance the usefulness of information beingprovided to different stakeholders.In the absence of mandatory reporting requirements, one alternative way of disseminating informationregarding IA is to engage in voluntary disclosure practices. It has also been suggested that companieswhich would benefit the most from such practice are those originating from emerging economies lookingto expand into international markets. While there exists an array of empirical studies which haveexamined the voluntary disclosure practices of corporations from developed economies, less consideredare the reporting practices of emerging market companies regarding their IA.The purpose of this thesis is to examine the voluntary disclosure practices of the top 200 emergingmarket companies regarding the variety, nature and extent of IA and to consider some of the factors thatmay be associated with the level of such disclosure. Using a disclosure index based on the Value ChainScoreboard? (Lev, 2001), narrative sections of the 2002 annual reports of the top 200 emerging marketcompanies are analysed. The findings indicate that emerging market companies engage in voluntarydisclosure practices in order to disseminate different varieties of mainly quantitative IA information totheir global stakeholders. Further, the variety and the extent of IA disclosure are associated withcorporate specific factors such as leverage, adoption of IFRS/US GAAP, industry type, and price to bookratio. Contrary to the existing literature on voluntary disclosure, however, firm size and ownershipconcentration are not found to be associated with the IA disclosure level. Country specific factors suchas the level of risks associated with economic policy and legal system are also found to be significantlyassociated with the IA voluntary disclosure level.