Abstract

This paper examines the cross-sectional effect of investment in employees and investment in research and development on the extent of voluntary disclosure of intellectual capital of 443 FTSE All Share Index companies for the year 2003/2004. The extent of disclosure is measured by a disclosure index based on intellectual capital attributes included in the narratives and illustrations of the annual reports. The paper predicts that agency costs may be minimised through voluntary disclosure. In addition, that in some industries, the benefits of signalling valuable, rare, inimitable and non-substitutable attributes may outweigh the competitive costs of reporting this information. The results suggest that large companies operating in non-manufacturing, high-tech and innovative industries that are characterised by investment in employees and research and development processes have higher levels of hidden value; these companies are associated with the signalling of intellectual capital.

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