The Effect of Intellectual Capital Disclosure on Financial Measures of Performance of the Listed Firms in the Egyptian Stock Exchange

The study examines how intellectual capital disclosure affects the financial performance of the Egyptian Stock Exchange listed firms. The intellectual capital, comprising human, structural, and relational types of it, has become a critical factor in determining competitive advantage; however, its intangible nature and absence of standardized measures and reporting practices have become obstacles to its inclusion into traditional financial reporting frameworks. The research covered the discrepancy between the importance of intellectual capital and its low disclosure in Egypt, focusing on the barriers of measurement, reliability, and the accounting standards.
Theoretical framework was developed to clarify the constituents, properties, and accounting conditions of disclosure of intellectual capital, its applicability in improving transparency, risk reduction, and improving the quality of information in financial reports. The empirical quantitative approach was utilized, and the information was gathered through the structured questionnaire that was distributed to 98 companies listed on the Egyptian Stock Exchange in 20192022. The reliability and validity of the research instrument were statistically assessed with the help of Cronbach Alpha, Pearson correlation analysis, descriptive statistics, and t-tests.
The results show that the relationship between intellectual capital disclosure and such financial performance measures as the return on assets (ROA), the return on equity (ROE), the earnings per share (EPS), and the market-to-book value is robust and statistically significant. Findings show that the superior quality of the disclosure of intellectual capital leads to quantifiable change in the relevant financial parameters and better the ability of the stakeholders to assess the firm value. In addition, the research establishes that those companies that offer better disclosure of intangible assets in a clearer and comprehensive manner achieve high degrees of market confidence and high financial performance.
The paper ends by offering recommendations on how accounting standards on intangible assets should be scaled up to enhance transparency in reporting of intellectual capital and help companies to build a detailed intellectual property portfolio. The enhancement of disclosure practices is essential to enhancing the financial performance, to act as information to investment decisions, and to enhance the competitiveness of the companies in the Egyptian capital market.