Friend or foe? The effect of corporate governance on intellectual capital disclosure in IPOs

We study the role of corporate governance on the Intellectual Capital disclosure strategy of listings firms under different perspectives (agency and signaling theories). Previous literature has shown different competing arguments regarding how governance might affect the level of IC disclosure and also none of the contributions is focused on IPOs. Depending on the theoretical framework, governance and corporate disclosure may be complementary (agency theory) or substitutive (signaling theory) for accountability. If they are complementary, agency theory predicts that the adoption of better governance mechanisms will strengthen the internal control of companies so that a greater extent of discretionary disclosure is expected. If the relationship is substitutive, drawing on signaling theory, we expect that issuers use corporate governance as a signal and accordingly reduce the amount of burdensome IC information that is given to investors in the listing prospectus. Therefore, this study aims to better understand which theoretical framework is best at interpreting the observed IC disclosure policies of listing firms. To this end, we test a series of hypotheses on a sample of 70 Italian firms that went public between 2004 and 2014. A series of six IC disclosure indexes are employed in a multivariate analysis in order to disentangle the specific effect that each corporate governance variable might play over a variety of IC information that is disclosed into the listing prospectus. Our results reveal that, according to the signaling theory, good governance mechanisms are substitutive to the IC disclosure and the results are consistent across the different IC categories that are here considered. This study has practical implications in that contributes to the understanding of managers’ decision processes with respect to the choice of multiple signals and it also suggests a possible interpretation of the low propensity of listing firms to disseminate longer than necessary discretionary information.