The effectiveness of intellectual capital disclosure in market assessments of corporate value creation

According to literature on the value relevance of intellectual capital (IC), a gap between the market and book value of a company larger than one indicates the con- tribution of IC resources (mostly off-balance sheet) to the value creation potential of a firm as perceived by investors. In Italy, with the introduction of Legislative Decree no. 32/2007 (by which the EU Directive No. 2003/51/CE was partially implemented into Italian law), companies are encouraged (for the first time in Italy) to disclose in the management commentary for the fiscal year-end of 2008 and for subsequent years non-financial information about employee matters. The purpose of this study is to investigate whether a more virtuous corporate disclosure behaviour on non- financial IC information relating to the human capital significantly contributes to better explain (more than other IC components) the market-to-book value gap. In addition, this paper aims to investigate the effectiveness of IC disclosure in improv- ing the accuracy of market valuation process. The results demonstrate that both hu- man capital performance and the related (human capital) non-financial disclosure tend to significantly explain the market-to-book value gap, playing a unique role in the market valuation process of high-tech companies. Moreover, a greater disclosure on IC appears to be determinant in improving the accuracy of market assessment of high-tech companies characterised by higher IC performance.