Muhammad Luthfi Iznillah

Type of the article: Research Article

Abstract
The increasing importance of intangible resources and narrative disclosure in a knowledge-based economy has raised critical questions regarding their role in shaping corporate investment behavior, particularly within state-owned enterprises operating under complex institutional constraints. This study examined the direct effect of intellectual capital on investment decisions and evaluated the mediating roles of annual and audit report readability in this context. The empirical analysis is based on a balanced pooled data set of 20 non-financial Indonesian State-Owned Enterprises (SOEs) listed on the Indonesia Stock Exchange for the period 2018–2023, totaling 120 firm-year observations. These firms, representing strategic sectors such as infrastructure, energy, and telecommunications, were selected due to their high asset intensity and pivotal role in national development under bureaucratic oversight. Using Partial Least Squares Structural Equation Modeling (PLS-SEM), the results reveal that intellectual capital has a significant positive effect on investment decisions (β = 0.401; t = 7.075), explaining 18.7% of the variance, which increases to 53.6% when incorporating firm-level control variables. Conversely, intellectual capital does not significantly influence report readability, and neither readability measure affects investment decisions, indicating an absence of mediation effects. Firm size emerges as the primary determinant, while profitability and leverage remain insignificant. In conclusion, investment decisions in Indonesian SOEs are driven by internal resource efficiency and organizational scale rather than narrative clarity. These findings suggest that in bureaucratic environments, report readability reflects compliance-oriented disclosure rather than effective informational signaling, highlighting a transparency paradox.

Acknowledgment
This research was made possible through the full support of Universitas Riau, particularly via its Institute for Research and Community Service.