Downsizing decisions, intellectual capital, and accounting information

The purpose of this paper is to present a new method to account for investments in human capital, which the authors have named investment capitalization. This method uses investments in training and hiring of employees as a surrogate for their intellectual capital, capitalizing and amortizing the investment over its useful life. Investment capitalization is compared to the more conventional Generally Accepted Accounting Principles (GAAP) and the newer intellectual capital accounting methods.

Scenarios comparing the effects of downsizing or organizational performance are used to demonstrate the effects of decisions based on intellectual capitalization and GAAP.

Results of the scenario analysis show that the investement capitalization method causes less destruction of intellectual capital during downsizing decisions than does GAAP.

This paper presents a new method of accounting for intellectual capital and demonstates the benefits of this method when making downsizing decsions.