Improving the information environment for analysts Which intellectual capital disclosures matter the most?

Purpose - The purpose of this paper is to document the relationship between intellectual capital disclosure and analyst following for biotechnology firms listed on the Copenhagen Stock Exchange between 2001 and 2010. Design/methodology/approach - Intellectual capital disclosure was computed from financial statements applying the disclosure index of Bukh et al. (2005), while analyst following data were retrieved from the Institutional Brokers' Estimate System (I/B/E/S). Findings - The results show that analysts are more likely to follow firms with high intellectual capital disclosure. This finding suggests that analysts wish to follow those firms for which they have more information. The results also show that the most important intellectual capital disclosures for analysts are those related to employees and strategic statements. This paper therefore expands on previous results by raising awareness of which information companies should disclose to the capital market in order to improve analyst following, in turn helping to improve the general disclosure environment. Research limitations/implications - More relevant methods, such as surveys or interviews with management, could be used to improve the information content of intellectual capital disclosure. Analysts probably deduce the intellectual capital of a firm from interaction with management rather than financial statements. Practical implications - Firms in and beyond the biotechnology sector can improve their information environment by disclosing more information on intellectual capital in relation to employees and strategic statements in their financial statements. Originality/value - The findings shed light on the importance of understanding intellectual capital in the biotechnology sector for analysts and investors who wish to value such firms.