Intellectual capital reporting and opportunistic underlying earnings disclosure of Australian listed companies

Based on both the resource-based theory and signaling theory, this paper attempts to examine whether disclose intellectual capital (IC), which is treated as inimitable and non-substituable resource of a firm, can reflect a firm's financial performance. In addition, this paper also looks at whether signals such as IC through annual reports are seen by investors as value-relevant signals for firm value-evaluation. Finally, this paper attempts to investigate whether the opportunistic underlying earnings disclosure firms are difficult in terms of signaling inimitable IC. Through a content analysis of 610 annual reports of ASX 200 listed Australian firms, this paper found the following results. The results of a firm's financial performance showed that sufficient IC disclosure was positively related to a firm's current and future profitability and productivity. The result of the value-relevant found a significant positive relationship between sufficient IC disclosure and the amount of future earnings reflected in the current annual returns. Finally, this paper found that sufficient IC disclosure is negatively related to opportunistic underlying earnings management. Collectively, the results confirm the resource-based theory and signalling theory, in that IC is treated as the inimitable and non-substitutable resources of a firm to enhance a firm's current and future financial performance and value-relevant to investors for firm valuation. The opportunistic underlying earnings reporting are less likely to disclose IC as the IC is the firm's resource that is hard to imitate or replace; therefore, these firms opportunistic define the underlying earnings to influence their investor's perceptions regarding a firms' performance