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

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