This study examined the determinants of disclosure of
intangible assets in financial reporting using thirty
(30) companies listed on the Nigeria Stock Exchange (NSE) for a period of seven
years (2011–2015). The objective was to determine the relationship
between company size, profitability, leverage, company age, auditor type,
liquidity and intangible asset disclosure. The Panel Least Square (PLS) was employed
in analyzing and testing the hypotheses, the findings revealed that there is a positive and significant relationship between
company size, profitability and voluntary disclosure of intangible
assets. The study reveals that a positive and
insignificant relationship exist between leverage, auditor type, liquidity and disclosure
of intangible assets. While company age exhibit a
negative and significant relationship with voluntary disclosure of
intangible assets. It is concluded that an
oft-stated concern that the disclosure on intangibles has not kept pace with
the capital market’s demand for increased information. In line with the
findings, we therefore recommend to regulatory authorities in Nigeria for a
review of mandatory disclosure requirement with a view of making some voluntary
disclosures mandatory irrespective of the firms’ size.
TABLE OF CONTENTS
Title Page i
Table of Contents vi
Background to the Study 1
Statement of Problem 4
Research Questions 5
1.4 Objectives of the Study 6
Statement of Hypotheses 7
1.6 Significance of the Study 8
of the Study 9
Limitations of the Study 10
1.9 Definition of Terms 10
Two: Review of Related Literature
2.1 Introduction 13
2.2 Literature Review on Selected Variables 14
2.2.1 Company Size and Intangible Asset Disclosure 20
2.2.2 Profitability and Intangible Asset Disclosure 23
2.2.3 Leverage and Intangible Asset Disclosure 26
2.2.4 Company Age and Intangible Asset Disclosure 28
2.2.5 Auditor Type and Intangible Asset Disclosure 30
2.2.6 Liquidity and Intangible Asset Disclosure 32
2.3 Review of Empirical (Prior) Studies 33
2.4 Conceptual Framework 37
2.5 Theoretical Framework 44
Methods and Design
3.2 Research design 46
Description of the Population of the
3.4 Sample Size 47
Sampling Techniques 47
Sources of Data Collection 47
Method of Data Presentation 48
3.8 Method of Data Analysis 49
Chapter Four: Data Presentation, Analysis and Hypothesis
Presentation of Data 55
4.3 Data Analysis 55
Five: Summary of Findings, Conclusion and
5.2 Summary of Findings 63
to the Study
One of the
most popular alternative ways of communicating is the use of narrative
reporting where intangible asset information is voluntarily disclosed in
narrative sections of the annual reports, outside the financial statements and
their notes, as part of broader business reporting practices. Intangible assets
are of increasing importance for the corporate value creation processes of all
kind of organizations. This has severe consequences for internal and external
reporting and hence for the decision making processes. Intangibles treated as
resources of distinctive value should then be developed and allocated according
to “objective“ measures and according to excepted economic criteria (Ghamari,
Saeidinia, Hashemi & Aghaei, 2012)
Alves and Martins (2010) support that,
intangible assets show a set of characteristics – namely, high risk and
uncertainty, firm-specificity and human capital intensity - that make them
markedly distinct from other sorts of assets. Consequently, one can argue that
differences in corporate asset structures – namely the level and the nature of
the intangible assets – may affect the distribution of rents among managers,
shareholders and debt holders. Managers contribute with human capital, whereas
debt holders and shareholders contribute with financial capital (of different
nature) to the firm.
opinion, Svensson (2010) asserted that, intangible assets have become more and
more important as the information and knowledge society has been prevalent in
the end of the 2000 century. At the same time, the intangibles have been more
important to disclose to different stakeholders, for companies. The book values
of companies have constantly been shrinking in relation to market value. He
further opined that, the value and impact of intangibles are not adequately
reflected in the traditional mandatory accounting framework. Intangibles can be
denoted as a kind of unaccounted assets in the traditional accounting system.
There is an international pressure on corporations to improve their accounting
disclosure. Wide ranges of participant groups and other organizations have also
diverse interests and concerns to see that accounting practices of disclosure
are improved. In literature, practices of disclosure are basically related to
the communication framework of capital market.
observed that the objective of preparing a company’s financial statement is to
make known the company’s performance. Specifically, it provides information
about a company’s financial performance, financial position, and cash flows.
However, if the financial statement must effectively meet this objective, it
must provide adequate information that relates to the various items or
components (capital and recurrent) of the final accounts. Also, it is observed
that firms and organizations in Nigeria prepare financial statements at the end
of their accounting year or any period usually yearly i.e. twelve (12) months.
In preparing these financial statements, assets and liabilities are reported at
their net book values to determine the financial performance and position of
the firm and ultimately, the net worth of the business. However, one vital
aspect of these financial reporting which is unduly neglected in the balance
sheet is the reporting of intangible assets. Furthermore, it has been observed
that more often than not, a company’s market value is usually greater than its
book value and the disparity can be attributed to the non-disclosure of
intangible assets in the company’s balance sheet.
also tow the same line of reasoning as he asserts that the role of intangibles
and their associated benefit can be assessed from the changing market-to-book
value differences. That is, the magnitude of the difference in market values
and book values of companies is an indication of the impact of intangibles in
In the light
of the above discussion, this study shall examine the determinants of
disclosure of intangible assets.
Over the last
fifteen (15) years or so there have been a number of calls for accounting
reforms, with claims that the traditional historic cost approach has outlived
its usefulness. One of the claims often made in these debates is that the
economy has changed in fundamental ways that business is now fundamentally
“knowledge-based” rather than industrial, and that “intangibles” are the new
drivers of economic activity. Based on these claims, commentators contend that
one of the key problems faced by financial disclosure is that financial
statements failing to recognize many of the most important knowledge-based
intangibles, such as intellectual capital, and that this has adversely affected
investments in intangibles.
of this study is to investigate whether company size, profitability, leverage,
company age, auditor type, liquidity influence firm decision to disclose
backdrop, the following research questions are raised:
there a significant relationship between company size and intangible asset
there a significant relationship between profitability and intangible asset
there a significant relationship between leverage and intangible asset
there a significant relationship between company age and intangible asset
there a significant relationship between auditor type (BIG 4) and intangible
there a significant relationship between liquidity and intangible asset
of the Study
The broad objective of this study is to
examine the determinants of disclosure of intangible asset in Nigerian quoted
companies. The specific objectives are to:
if there is significant relationship between company size and intangible asset
if there is significant relationship between profitability and intangible asset
if there is significant relationship between leverage and intangible asset
the relationship between company age and intangible asset disclosure;
the relationship between auditor type and intangible asset disclosure; and
the relationship between liquidity and intangible asset disclosure;
The following hypotheses stated in null
and alternative forms were tested in the course of the study;
is no significant relationship between company size and intangible asset
is significant relationship between company size and intangible asset
is no significant relationship between profitability and intangible asset
is significant relationship between profitability and intangible asset disclosure.
is no significant relationship between leverage and intangible asset disclosure.
is significant relationship between leverage and intangible asset disclosure.
is no significant relationship between company age and intangible asset
is significant relationship between company age and intangible asset
is no significant relationship between auditor type and intangible asset
is significant relationship between auditor type and intangible asset
is no significant relationship between liquidity and intangible asset
is significant relationship between liquidity and intangible asset disclosure.
of the Study
expected that this study would consolidate existing literature on the issues
surrounding the disclosure of intangible assets in Nigeria. The study would
also facilitate the examination of the effects of disclosure of intangible
assets in Nigeria and thus boosting the empirical evidence from Nigeria. Furthermore,
given the empirical nature of the study, the outcome of this study would aid
policy makers and regulatory bodies in economic modeling and policy simulation
with respect to the selected variable examined in the study.
The result of
the study would be of benefits to investment analysts, investors and
corporations in examining the effectiveness of disclosure of intangible assets.
It will also be useful in stimulating public discourse given the dearth of
empirical researches in this area from emerging economic like Nigeria. Finally,
it would also add to the available literature on the area of study while also
providing a platform for other researchers who may want to further this study.
1.7 Scope of the Study
focuses on the determinants of disclosure of intangible asset in financial
reporting in Nigeria. The population of the study is entire two hundred and
fifty (250) companies in the Nigeria Stock Exchange. Thirty (30) quoted
companies in the Nigeria Stock Exchange shall constitute the sample size of
this study. The study will cover a period of five (6) years i.e. (2011 – 2015).
of the Study
The following are the
study was conducted solely on listed companies. The results may not be generalisable
to non-listed companies
study is limited by time and data. Due to time constraint, the data and
information used is not the product of primary research but are published
information obtained from articles, journals and financial statements.
ability to obtain a completely random sample.
Reporting: Financial reporting is concerned with
the recoding and interpreting of transaction for a business enterprise or other
economic unit and the periodic preparation of various report from such records
is also a systematic gathering, summarizing and interpreting of business
transaction in monetary terms such that it provides information which permits
informed judgement by the users of the information.
This can be defined as the rational selection of causes of action to optimize
the interrelationship of man, material and money for the survival and growth of
the organization. It can be regarded as the process of getting things done
through other people. A person who manages is called a manager.
is a process whereby human, material and capital resources are combined to
earn/satisfy human needs and wants. An entity which carries on such organized
efforts is known as a business entity.
is a set out rules and procedures relating to the measurement, valuation and
disclosure of accounting transactions.
Standards: A definitive standard for financial accounting and
reporting establish in the form of a International Accounting Standard Board
(IASB) issued by the International Accounting Standards committee.
Company: A company that has a listing agreement with a major
stock exchange and whose shears have a quotation on that exchange.
A person or an organization that invest money into business or something that
will yield more income.