Critically thinking about demand and supply of human capital disclosure of firms

World economies are increasingly being dominated by knowledge intensive industries. Firms that aspire to be successful in such industries focus on fostering intellectual capital (IC), which includes human capital (HC), rather than investing in physical assets. Importance of HC in firm value creation is firmly established in the literature. However, inherent nature of HC has limited any empirical value relevant studies on these assets. Literature on disclosure of IC information by companies in annual reports and IPO prospectuses around the world have looked at the level of emphasis placed on human capital disclosures by preparers of financial statements. These studies show mixed results as some countries disclose more HC information relative to others. On the demand side, capital market participants, namely financial analysts and fund managers seem not yet ready to incorporate such information into their valuation processes. Thus, the current study intends to critically discuss the reasons for the difference in emphasis placed by countries on HC disclosures and impediments for this information to explicitly be considered in valuation decisions by capital market participants. Further, the future role of preparers and users of IC information is evaluated.