Abstract:
Growing demand for financial and non-financial information by the users of financial reports leads
to an emphasis on the informativeness of financial statements. Thus, reporting reliable and relevant
financial and non-financial information becomes vital, and investments in intellectual capital, being
highly demanding information by the users, hold an important place in providing informative
financial reports despite the lack of proper accounting recognition criteria in financial statements.
Thus, our study aims to analyze the relationship between financial statement informativeness and
intellectual capital disclosure in Sri Lanka. Financial Statement Informativeness was measured
using the explanatory power of financial information in explaining market value. Content analysis
of annual reports followed by a quantity and quality index of Intellectual Capital Disclosure was
used to measure the Intellectual Capital Disclosures. A sample of 48 companies listed on the
Colombo Stock Exchange that disclose Intellectual Capital was used, and empirical analysis was
carried out using the Poisson regression method. A significant relationship between Financial
Statement Informativeness and Intellectual Capital Disclosures has been found, suggesting that
Financial Statement Informativeness plays a substantial role in providing disclosure on intellectual
capital in financial reports. This study confirms to make managers aware of its significant and
positive effect on financial statement informativeness in financial reports, given the importance of
Intellectual Capital Reporting in mitigating the disparity of financial information. An important
implication of the findings is that policymakers and regulators need to establish a uniform
methodology for reporting Intellectual Capital to establish consistent disclosure practices.
