THE IMPACT OF THE DISCLOSURE OF INTELLECTUAL CAPITAL ON THE RELEVANCE OF ACCOUNTING INFORMATION FOR Industrial COMPANIES LISTED ON ARAB STOCK EXCHANGES

Abstract

The paper investigates the relevance of accounting information of industrial companies listed on Arab stock exchanges between 2015 to 2022. Additionally, it explores whether or not accounting information relevance might be impacted by disclosures of intellectual capital. The paper uses multiple regression analysis to explore its hypotheses based on data of 120 firms that belong to industrial companies listed on Arab markets. The relevance of accounting information is estimated utilizing Ohlson model, which estimates the accounting information relevance through earnings per share (EPS), book value (BV), or operating cash flow (OCF) along with its impact on a firm’s price. The study uses index of intellectual capital disclosures that comprises items of 18. Factors including audit quality, SIZE of audit committee, audit committee meeting, SIZE of firms, leverage, as well as GDP, serve as control variables. Without introducing intellectual capital disclosures, only EPS is significant and positive to share price, implying relevance. But the results indicate that the other two accounting information variables (BV and OCF) are insignificant. Later, introducing intellectual capital disclosures to the model, the results indicate that book value (BV) and IC are significant and positive to share price. But EPS and operating cash flow (OCF) are insignificant. The interaction term of BV and IC is positive, implying that IC adds value to the relevance of BV. Intellectual capital disclosures significantly increase the relevance of accounting information, implying its role in improving financial information disclosures.From the findings, there is a challenge in IC reporting, requiring standard IC reporting structures or consolidated IC statements to emphasize firm value in a knowledge economy context. The major recommendations include IC disclosure improvement, focusing on relational capital, and leveraging IC governance for investor trust-enhancement. This is a gap that identifies financial-nonfinancial reporting linkage in emerging markets. The study offers empirical confirmation for the addition of intellectual capital reporting to company reporting in order to increase the relevance and credibility of accounting information in Arab industrial markets.