Applying Voluntary Disclosure Theories to Intangibles Reporting: Evidence from the Portuguese Stock Market

This paper draws upon agency theory, political cost theory, signalling theory, and legitimacy theory to construct an index of the voluntary disclosure of intangibles by companies listed on the Euronext market in Lisbon. We analyse the Management Report and Chairman's Letter of all 56 listed companies at 31 December 2003 (49 companies on the main market and 7 on the secondary market). We test several hypotheses about associations between the index of voluntary disclosure of intangibles (the dependent variable) and 8 firm specific characteristics (the independent variables: size, leverage, ownership diffusion, auditor size, profitability, industry, listing status and foreign activity). Our results reveal factors that influence the voluntary disclosure of intangibles in the small European capital market of a country where managers generally do not perceive capital markets as an important source of financing. Univariate analysis showed a significant influence of size, ownership diffusion, type of auditor, industry and listing status on the voluntary reporting of intangibles. Multivariate analyses revealed that the hypotheses concerning size, industry, type of auditor and ownership diffusion (and listing status to a lesser extent) provide a satisfactory basis for explaining firms' behaviour towards the voluntary provision of intangibles information. Other hypotheses, relating to leverage, profitability and foreign activity were rejected. Our results support the application of agency and political costs theories, signalling theory and legitimacy theory in determining the reporting of intangibles information in the annual reports of listed companies in Portugal.