Knowledge Metrics and Measurement

Friday, November 1, 2013, 3:30pm

Intellectual Capital Indicators and Disclosures in Investment Analyst Reports:  A Review

Natasha Ali


The purpose of this paper is to review and synthesise select research about intellectual capital (IC) disclosures, and based on this literature, describe the use of IC information by investment analysts in their investment research reports. “Similar terms such as "intellectual capital", "intangibles" and "knowledge capital" are sometimes used interchangeably with “intellectual assets”, and there have been a number of attempts to identify the various constituents of intellectual assets and develop a taxonomy” (OECD, 2008, p.9). Sell-side analysts may communicate IC information to produce investment research reports for internal and external distribution: “Unlike the work of buy-side analysts, which is only directed at facilitating investment decisions for their employer, the work of sell-side analysts is more widely disseminated to the customers and potential customers of the brokerage firms they work for” (Flostrand, 2006, p.463). Some groups have more access to relevant information than others. The analyst with access to information and contacts may foster client relationships through information exchange, anticipate the information needs of clients, and as a result, create investment reports which respond to these information needs. The diversity of the information needs among investors; however, may shape the intention for the research investment reports (IRRs). If analysts respond to the information needs of short-investors, as a group interested in the ‘rating’ of (buy/sell/hold), then this group may be interested in primarily publically available and factual data for short-term investments, and quantitative analysis of financial reports is sufficient. If analysts respond to the information needs of investors concerned with long-term investments, then it may be necessary to include an explanatory IC statement to accompany recommendations and ‘value-added’ information about the company. Ideally, analysts should combine both qualitative and quantitative approaches to evaluate industries in terms of its “value chains and competition structure” (Wansleben, 2012, p.255). This paper is a literature review of the existing work related to intellectual capital (IC) disclosures and investment analyst use of IC information. 

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