Intellectual Capital (IC) is a non-monetary asset that can generate future economic values in companies. Contemporary school of thought has now begun to recognize the importance of non-financial factors, particularly IC (which is always off the balance sheet) in addition to financial measures for investment decision. Therefore, the purpose of the study is to explore the implementation issues of IC disclosure. Taking into account the legitimacy theory which underscores the importance of `social contract' between an organization and the society, a series of in-depth interviews were conducted to investigate the issues related to the implementation of IC guideline in Denmark and Sweden. The result shows that the central motive in disclosing the IC information is to communicate corporate culture, strategy and future direction for the purpose of branding. The interview reveals that there are five other secondary motives emerging from the incentive to communicate information to stakeholders, i.e., (1) to retain and attract quality employees; (2) to retain and attract customers of company products; (3) to lobby for more synergetic collaborations with partners; (4) for the society; and (5) to manage the perceptions of the capital market. Issues highlighted in this study can provide some guidance on the implementation of IC disclosure in Malaysia and other parts of the world.

It is a well-known fact that the traditional reporting of corporate value in financial statement under the current mandatory reporting framework is unable to show the value or even acknowledge the existence of knowledge assets. However, contemporary schools have now begun to recognize the importance of nonfinancial factors in addition to financial measures for investment decision. Intellectual Capital (IC) such as highly skilled manpower, good business processes within organizations and strategic relationships that promote synergy, among many other IC assets are critical in the creation of a long-term corporate value particularly in knowledge-intensive sector such as information technology. It is implied from prior research that companies may be motivated to make additional voluntary reporting on these IC assets either within the annual reports, or through a separate disclosure medium because such disclosure would have a positive impact on their reputation and would attract more investors to buy their stocks. Prior research also finds that additional disclosure would reduce analyst forecast errors and the cost of equity, as well as increase the capital market liquidity.

The objective of the study is to explore the implementation issues related to IC disclosure. Implementation issues highlighted from this study can be used as inputs for policy makers (Standard Setter, Bursa Malaysia, Securities Commission, and Professional Bodies) in order to improve transparent and accountable reporting with respect to IC. Results of this research are particularly useful for investors as well as technologically inclined companies. Not much qualitative research has been done to explore these implementation issues.

Knowledge Management Journal, Intellectual Capital, Scandinavian Countries, Corporate Culture, Financial Measures, Business Processes, Capital Market Liquidity, Organizational Capital, Distribution Channels, Strategic Alliances, Customer Loyalty, Corporate Governance, Intellectual Capital Statement, Human Resources.