Firm Resources, Corporate Governance and the Disclosure of Intangible Assets

  •  Walter Mkumbuzi    


The paper investigates the determinants of intangible asset disclosure with reference to the interaction of heterogeneous asset and governance characteristics of firms. Specifically, it considers R&D intensity as a measure of asset heterogeneity and multiple proxies for the effectiveness of the firm’s corporate governance mechanisms and structures of accountability. Intellectual capital attributes are applied as the measure of disclosure quality and as the signalling mechanism through which management are able to inform markets of their competitive advantage. By applying the resource based view of the firm and signalling theory, the paper extends prior research on the determinants of intangibles disclosure through an analytical framework that examines the interaction of firm resources, corporate governance and intangibles disclosure. The theoretical framework combines the RBV of the firm in confirming intangibles as a necessary feature of disclosing firms’ asset base and signalling as the means with which management disclose their competitive advantage. The results of the analysis indicate a positive relationship between R&D intensity, complexity and scope of activity and the presence of quality signalling responses. Also, the separation of the roles of chair and non-executive director, complemented by experienced non-executive directors promote quality signalling through the disclosure of intellectual capital attributes. These findings support the view that corporate governance mechanisms are only effective when applied in combination. Governance mechanisms bring about transparency and accountability through disclosure of these intangibles despite the potential competitive losses. The lack of proprietary costs that might otherwise restrict disclosure might be attributed to competitors’ inability to imitate such intellectual capital resources and therefore their inability to duplicate such signals. The findings confirm the interaction between heterogeneous assets and governance mechanisms in the disclosure of intangibles as signalling mechanisms for management.


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