Qualitative characteristics of intellectual capital information used in Australian analyst reports

This paper explores the qualitative characteristics of intellectual capital information (ICI) used and communicated by sell-side analysts in initiating coverage reports written on Australian companies. Through the use of a multi-dimensional coding framework, it addresses the issue of how, as against what, ICI is used in analyst reports. The study is motivated by the increasing importance of ICI in explaining firm value and the lack of a common understanding of the utility of ICI and its links with value creation from a capital markets perspective. Our results highlight that the use of ICI by sell-side analysts is a multi-faceted phenomenon. We find that ICI is used discursively in explaining the 'value creation story' of the company and in justifying analysts' forecasts and estimates. Also, graphs and charts are used to visualise IC. The quantitative information (both monetary and non-monetary) established is used to derive expectations about future growth rates, earnings and cash flows. It was found that ICI is used more optimistically than negatively; and in a more forward-looking manner, emphasising value creation, rather than in a past-oriented manner focusing on value realisation. However, we find clear differences in the way external, internal and human capital information is used. The findings of this study have broader implications for improving corporate reporting to analysts as well as other key capital market constituents.