Impact of firm performance and corporate governance mechanisms on intellectual capital disclosures in CEO statements
| DOI | https://doi.org/10.1108/JIC-02-2020-0053 |
| Published date | 01 September 2020 |
| Date | 01 September 2020 |
| Pages | 290-312 |
| Subject Matter | Information & knowledge management,Knowledge management,HR & organizational behaviour,Organizational structure/dynamics,Accounting & finance,Accounting/accountancy,Behavioural accounting |
| Author | Ghassan H. Mardini,Fathia Elleuch Lahyani |
Impact of firm performance and
corporate governance mechanisms
on intellectual capital disclosures
in CEO statements
Ghassan H. Mardini and Fathia Elleuch Lahyani
College of Business and Economics, Qatar University, Doha, Qatar
Abstract
Purpose –Using agency theory and impression management theory, this study examines the impact of
financial performance (FP) and corporate governance (CG) mechanisms on the extent of intellectual capital
disclosures (ICDs) and the three components within the CEO statement –human capital (HC), structural capital
(SC) and relational capital (RC).
Design/methodology/approach –This study employs a sample of non-financial SPF-120 French listed
firms to capture the relevant variables; it collects data for 2010–2017, using a panel data technique to run the
random effects regressions.
Findings –The study finds that FP, measured using both market (Tobin’s q) and accounting (return on equity
and return on assets) indicators, plays a vital role in the extent of ICDs and the three components in the CEO
statement published by SPF-120 companies. This confirms its impact on the decision-making needs of
stakeholders. Among the CG mechanisms, this study finds that cultural diversity and gender diversity affect
some ICD components. Moreover, CEO characteristics such as age, education and role duality affect ICD, while
institutional ownership drives the extent of such disclosures.
Practical implications –Our findings have comprehensive implications for managers of French listed firms,
the Autorit
e des March
es Financiers, and stakeholders in general.
Originality/value –This study provides significant insights by investigating the impact of FP, CG and
company characteristics on the extent of the ICDs published in CEO statements.
Keywords Intellectual capital disclosures, Human capital, Structural capital, Relational capital, Financial
performance, Corporate governance
Paper type Research paper
1. Introduction
The disclosure of intellectual capital (IC) is an important factor that leads a successful firm to
achieve its objectives and contributes to knowledge in the economy (Petty and Guthrie, 2000).
Specifically, this type of disclosure shares knowledge about a company’shuman
development, innovation and connections (Cabello-Medina et al., 2011;Castellano et al.,
2019). A firm illustrates its IC voluntarily, as part of its CEO statement to stakeholders
(Striukova et al., 2008). Such a disclosure helps stakeholders understand the views of
managers as well as the source and development of IC among the firm’s current and future
achievements (McCracken et al., 2018). Prior studies concluded that IC has different
components (Striukova et al., 2008;Boujelbene and Affes, 2013;Goebel, 2019;Chiu al., 2019).
However, most researchers and experts in the IC field accepted the following three
components: human capital (HC), structural capital (SC) and relational capital (RC) (Striukova
et al., 2008;Boujelbene and Affes, 2013;Ozkan et al., 2017;McCracken et al., 2018;Chiu
et al., 2019).
The literature includes empirical investigations on intellectual capital disclosures (ICDs)
by firms globally. For instance, Ozkan et al. (2017) investigated the relationship between IC
and financial performance (FP) in the Turkish banking sector. McCracken et al. (2018) and
Striukova et al. (2008) explored HC and IC reporting, respectively, in the United Kingdom.
JIC
23,2
290
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1469-1930.htm
Received 26 February 2020
Revised 8 July 2020
Accepted 12 August 2020
Journal of Intellectual Capital
Vol. 23 No. 2, 2022
pp. 290-312
© Emerald Publishing Limited
1469-1930
DOI 10.1108/JIC-02-2020-0053
Muttakin et al. (2015) provided empirical evidence for IC and corporate governance (CG)
mechanisms in Bangladesh, while Yan (2017) investigated the association between ICDs in
CEO statements and CG in FTSE-100 firms. Prior studies also recognized that the FP
disclosed in annual reports contains undocumented hidden value (Eberhart et al., 2004). This
study uses both agency and impression management theories to investigate ICDs in CEO
statements in France as a source hidden FP value. Specifically, we ask the following research
questions: (1) What is the level of ICDs by non-financial SPF-120 listed firms? (2) What
relationships exist among the level of ICDs, FP (using both market and accounting indicators)
and the CG mechanisms of these firms?
Although prior studies investigated most ICD dimensions, this study tackles the subject
from different aspects. First, studies thus far only explored the relationship between ICDs and
FP (e.g. Ozkan et al., 2017), while some considered the mechanisms of ICDs and CG (e.g.
Muttakin et al., 2015;Yan, 2017). By contrast, this study investigates the interplay between
the FP and CG mechanisms and its effect on the extent of ICDs in the CEO statements of
French listed firms. Further, studies of IC examined ICDs in annual reports (Guthrie and
Petty, 2000;Sardo et al., 2018). However, the CEO statement is a crucial communication
channel that highlights a firm’s intellectual efforts and affects stakeholders’expectations
regarding the prevalence of technologies, knowledge and skills as the primary contributors to
firm value creation. Thus, our study focuses on CEO statements. Moreover, it includes all
three ICD components (HC, SC and RC) in contrast to prior studies that examined only
individual components (e.g. Rehman et al., 2011;Tseng et al., 2013;Denicolai et al., 2015;
Nimtrakoon, 2015).
Second, the theoretical framework of this study integrates agency theory and impression
management theory to enhance its results and provide practical and theoretical implications
that verify and extend the literature on ICDs. Specifically, this study finds a relationship
between these two theories and the problems traditionally associated with ICDs in the
literature, which enables us to integrate them into the proposed model. Several factors help
reduce the impact of managers’impression management and agency problems in ICDs,
including CG, FP and company characteristics (CC). On the one hand, we find that agency
problems affect the asymmetry of ICDs and manipulate the extent of ICD reporting to the
public. On the other hand, impression management theory considers it a skill or method that
managers (i.e. CEOs) employ for their benefit, when they manipulate ICDs, with such
manipulation becoming a serious issue for external decision-makers. Therefore, the common
link of the “manipulation”of ICDs between the two theories and the association between the
variables is a significant motivation for this study.
Third, prior studies arrived at different conclusions regarding the CG–ICD and FP–ICD
relationships, suggesting a problem in evaluating the nature of these relations. It is a valid
research motivation to consider that different cultural and business environments affect
ICDs; therefore, it is essential to use a new sample of French listed firms (SPF-120) to verify
previous findings. Few studies have investigated ICDs by large firms in the French stock
market. Among these, Boujelbene and Affes (2013) investigated the impact of ICDs on the cost
of equity capital.
Fourth, this study provides comprehensive implications for managers of French listed
firms, the Autorit
e des March
es Financiers (AMF), and stakeholders in general. It provides
empirical evidence of the relationships between the three IC components –CG mechanisms
and FP –thereby enhancing our understanding of the determinants of the IC components and
their development. For instance, this study finds that HC and RC are key factors in a firm’s
FP. The results show that the IC components have a positive and significant relation with the
FP market indicator (Tobin’s q; TQ) in the short run, whereas ICDs, HC and RC have a
negatively significant relation with one of the FP accounting indicators (return on equity;
ROE). SC has no relationship with either ROE or the other accounting indicator, return on
Impact of FP
and CG on
ICDs in CEO
statements
291
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