Intellectual capital reporting and credit risk analysis Jose ´ Guimo ´n Autonomous University of Madrid, Madrid, Spain Abstract Purpose – Aims to increase our understanding of the role of intangibles in credit risk analysis and of the main factors which enable or disable the impact of intellectual capital (IC) reports. Design/methodology/approach – Discusses recent findings from the European Union-funded E*Know-Net project (2001-2003) and reviews other works on the subject. This literature review is complemented with two case studies. The first presents the results of an experimental workshop with 12 credit risk analysts from Banco Santander Central Hispano, a major Spanish bank. The second case study looks at how the European Investment Bank integrates intangibles into its project appraisal process. Findings – Provides a comprehensive conceptual framework to analyze the impact of IC reporting in credit risk analysis. Argues that there is a significant gap between the perceived potential impact of IC reports and their real impact in practice, and proposes a classification of the barriers in the market for corporate information that help explain this apparent paradox. The case studies presented illustrate some of the factors that enable or disable the impact of IC reporting in practice. Originality/value – Increases understanding of the relevance and impact of intangibles and IC reports in the lending process. Draws conclusions for companies, credit institutions and policy makers. Keywords Intangible assets, Intellectual capital, Credit, Risk analysis, Spain Paper type Case study 1. Intellectual capital and capital markets It is widely claimed that the existing accounting system rarely recognizes intangible resources and activities despite their growing importance in modern economies (Lev and Zarowin, 1999). As a result, there would tend to be a bias in financial markets against intangible-intensive investments, such as research and development (R&D), human capital or organizational development. Ultimately, communication gaps between firms and financial institutions on the critical intangibles that drive innovation and business performance result in an inefficient allocation of limited financial resources, curtailing economic growth. The lack of adequate information on intangibles is also seen as one of the major reasons behind increased volatility and information asymmetry in capital markets. Efforts to alleviate this problem are generally directed towards two complementary directions, which I will call the “capitalization approach” and the “extended reporting approach”. The capitalization approach attempts to relax the conditions that must be met for intangibles to be capitalized, so that they can more easily appear as investments in the balance statement rather than as current expenses. The restrictions The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at www.emeraldinsight.com/researchregister www.emeraldinsight.com/1469-1930.htm This article was produced within the context of E*Know-Net, a EU-funded research project on intellectual capital coordinated by the Autonomous University of Madrid and integrated by 15 European research centers. An earlier version of this paper was submitted to the EU Commission in January 2004 as part of the Final Report of E*Know-Net (STRATA Program, Ref: HPV1-CT-2001-50002). JIC 6,1 28 Journal of Intellectual Capital Vol. 6 No. 1, 2005 pp. 28-42 q Emerald Group Publishing Limited 1469-1930 DOI 10.1108/14691930510574645