Chinese and English language versions: intellectual capital disclosure
| Date | 21 October 2013 |
| Published date | 21 October 2013 |
| DOI | https://doi.org/10.1108/JIC-03-2013-0030 |
| Pages | 661-686 |
| Author | Likang Liao,Mary Low,Howard Davey |
| Subject Matter | Information & knowledge management,Knowledge management |
Chinese and English language
versions: intellectual
capital disclosure
Likang Liao, Mary Low and Howard Davey
Department of Accounting, University of Waikato, Hamilton, New Zealand
Abstract
Purpose – The paper of this paper is to assess the extent and quality of IC disclosure in the Chinese
and English language versions of the annual reports of 50 Chinese companies which are dual listed
in both Chinese Mainland and Hong Kong stock markets.
Design/methodology/approach – An IC disclosure index is constructed. Content analysis is used
to code the 100 annual reports in accordance to a five-point scale.
Findings – The Chinese version annual reports disclose more internal capital than the English
versions, yet the English versions showed greater external capital. There was found to be a strong
relationship between type of industries, the size of companies and the level of IC disclosure.
Research limitations/implications – The paper only examines one year’s annual reports ofthe top
50 Chinese companies by market capitalisation.
Practical implications – It is hoped that by highlighting the IC disclosure of companies in China
this will raise the level of debate around this issue and will lead to g reater disclosure transparency of
company reporting.
Originality/value – This is the first research study that compares the IC disclosure in different
language versions of annual reports of Chinese companies as well as testing for the effects of company
characteristics. It is also the first study that uses three different weighting methods to measure
disclosure quality.
Keywords China, Intellectual capital, Disclosure, Accounting
Paper type Research p aper
Introduction
In the new millennia, knowledge has become a key driver for business to gain and
maintain a competitive business advantage (Schneider and Samkin, 2008). Companies
have become increasingly focused on the intellectual capital (IC) as the key driver of
value (e.g. Bontis, 1999, 2001). This trend has led to an increase in interest in the area
and the demand for disclosure and measurement of IC. A number of research studies in
IC disclosure have been published in the last decade (Guthrie et al., 2004; Petty and
Guthrie, 2000). Many of these studies have focused on the voluntary IC disclosure of
companies in developed countries, for example, Australia (Guthrie and Petty, 2000),
Italy (Bozzolan et al., 2003), New Zealand (Wong and Gardner, 2005), Spain (Oliveras
et al., 2008), USA (Sonnier et al., 2008) and UKUK (Striukova et al., 2008). Some studies
have focused on developing countries, for example, China (Yi and Davey, 2010), India
(Kamath, 2008), Malaysia (Yau et al., 2009), Sri Lanka (e.g. Abeysekera, 2008) and South
Africa (April et al., 2003), but these have been limited in number.
Prior to 2011, only two studies on IC disclosure in Chinese companies had been
undertaken (Xiao, 2008; Yi and Davey, 2010). Xiao’s (2008) research was exclusively
focused on the frequency of IC reporting in the Shanghai Stock Exchange Market
(SHSE). Yi and Davey (2010) study the IC disclosure in the English version of annual
reports of Chinese companies. The purpose of this research is to fill the gap in prior
studies on Chinese companies. This research assesses the voluntary disclosure of IC in
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1469-1930.htm
Received 7 March 2013
Revised 14 April 2013
22 April 2013
Accepted 24 April 2013
Journal of Intellectual Capital
Vol.14 No.4, 2013
pp. 661-686
rEmeraldGroup Publishing Limited
1469-1930
DOI 10.1108/JIC-03-2013-0030
661
Intellectual
capital
disclosure
both the 2009 Chinese and English version annual reports of 50 largest Chinese
companies, which are dual listed on Chinese Mainland and Hong Kong stock markets.
This study also provides an examination on the extent and quality of disclosure and
the effects of size and industrial types on the level of disclosure of IC.
This research is structured in sections as follows. The second section reviews prior
studies on IC disclosure. The third section describes the research method of current
study. The fourth section analyses the research results. The fifth section provides a
discussion of the research results. Finally, conclusions and comments for future
research are provided.
Prior studies in IC disclosure
This research has found that most of the prior studies have focused on the IC
disclosure in developed countries, such as Australia, New Zealand, UK and USA
(Abdolmohammadi, 2005; Bru
¨ggen et al., 2009; Campbell and Rahman, 2009; Guthrie
and Petty, 2000). Few studies have been conducted in developing countries, such as
China, India and South Africa. Most of the prior research studies use content analysis
to code the disclosure of both quantitative and qualitative IC attributes in companies’
annual reports or other published materials. Three IC categories: exter nal capital,
internal capital and human capital developed by Sveiby (1997) became a common
framework used by more recent research studies. Some studies such as Guthrie and
Petty (2000), Oliveras et al. (2008) modified the Sveiby framework by adding more IC
attributes to meet the specific purpose of their research. Abdolmohammadi’s (2005)
study, however, constructed ten IC categories with 58 attributes.
A perusal of prior literature did not find any two prior studies that had the same
purpose of research. Some studies tracked the trend of IC disclosure in a country (Petty
and Cuganesan, 2005; Sujan and Abeysekera, 2007); some monitored the frequency of
IC reporting (Brennan, 2001; Xiao, 2008), others conducted their study to test the
relationship between variable factors of their sample companies and the level of IC
disclosure (Kamath, 2008; Li et al., 2008; Whiting and Mil ler, 2008). The one common
objective found in all the studies was to explore the level of IC disclosure in different IC
categories except for Kamath’s (2008) study. Kamath compared the IC reporting level
between different industries, and no specific IC category was monitored in this study.
Prior studies conducted in Western countries (Brennan, 2001; Guthrie and Petty,
2000) found that the western companies normally repo rt more external capital than
internal and human capital in their annual reports. The IC studies in Asian countries
on the other hand found that Asian companies report more internal capital (Xiao, 2008;
Yau et al., 2009). Interestingly, New Zealand local governments also value the inter nal
capital of their organisation as much more important than external capi tal (Schneider
and Samkin, 2008). Human capital which indicates how valuable people are to an
organisation appears to lack priority in the annual rep orts reviewed by IC researchers.
The conclusions on the effect of the companies’ characteristics on IC disclosure are
varied in prior studies. Bru
¨ggen et al. (2009) find that industry types and information
asymmetry are important determinants fo r IC disclosure in Australian companies. No
relationship was found between company size and the level of IC disclosure. Wong and
Gardner (2005) study finds that there is no relationship between industry typ es and
level of IC disclosure in New Zealand companies. Bozzolan et al (2003) study of Italian
companies suggests that industry types and company siz e are not determinants for
disclosure decision making but they do have significant influence over the amount of
IC information disclosed. Petty and Cugane san (2005) found that the level of IC
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