Intellectual capital disclosure by Chinese and Indian information technology companies. A comparative analysis
| Published date | 11 July 2016 |
| Date | 11 July 2016 |
| DOI | https://doi.org/10.1108/JIC-02-2016-0026 |
| Pages | 507-529 |
| Author | Qianyu Wang,Umesh Sharma,Howard Davey |
| Subject Matter | Information & knowledge management,Knowledge management |
Intellectual capital disclosure by
Chinese and Indian information
technology companies
A comparative analysis
Qianyu Wang, Umesh Sharma and Howard Davey
Department of Accounting, Waikato Management School,
University of Waikato, Hamilton, New Zealand
Abstract
Purpose –The purpose of this paper is to examine the extent and quality of voluntary intellectual
disclosures by information technology (IT) companies of China and India.
Design/methodology/approach –The research method adopted for this study is content analysis.
The research islimited to the intellectual capitalinformation disclosed in companies’annual report. The
sample for this researchis based on 20 IT companies listed by market capitalization listed on Shenzhen
or Shanghai stock exchange market, and the largest 20 companies listed onIndian stock market.
Findings –Indian IT companies tends to perform better than Chinese IT companies in extent
and quality of disclosures. The extent of disclosure of both countries is at a relatively high level.
The most frequently reported disclosure category in India is external capital, while the least one is
human capital. In China, external capital is the most frequently disclosed category, while the internal
capital is the least one.
Research limitations/implications –The sample size of the study is relatively small. Future
research can expand on the sample size to get an overview of the intellectual capital disclosure, and
conduct a longitudinal study to capture the trend of reporting practices.
Practical implications –The findings of this study have implications for policy makers and
standard setters for rethinking of inclusion of intellectual capital disclosure in annual reports as
compulsory items. This will not only add tot he quality of information but various stakeholders will be
able to make an assessment of the values of a firm.
Originality/value –Previous studies of intellectual capital (IC) disclosure have covered little on the
relationship between market capitalization and quality of disclosure and cross-country disclosure on
IC. This research tends to extend the literature on IC disclosure.
Keywords China, Disclosure, India, Information technology, Intellectual capital, Accounting
Paper type Research paper
1. Introduction
In the new information age (Schneider and Samkin, 2008), the economy is increasingly
driven by knowledge (Bontis et al., 1999; Curado et al., 2011; Dzenopoljac et al., 2016;
Schneider and Samkin, 2008; Liao et al., 2013; Low et al., 2015). Knowledge is one of the
important factors for business to gain and maintain a competitive business
advantage (Ghosh and Wu, 2007; Curado et al., 2011). Intellectual capital is becoming
the key factor of underlying value creation (Liao et al., 2013; Catalfo and Wolf, 2016).
However, the balance sheet of a company fails to disclose the value of intellectual
capital (IC) and only shows the value of tangible assets. Some practitioners an d
regulators have criticized that the disclosure of intangibles is inadequate
(Bismuth and Tojo, 2008; Ariff et al., 2014), partly due to the conservative reporting
rules for intangibles. A gap persists between what shareholders want and what
companies provide.
Journal of Intellectual Capital
Vol. 17 No. 3, 2016
pp. 507-529
©Emerald Group Publis hing Limited
1469-1930
DOI 10.1108/JIC-02-2016-0026
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1469-1930.htm
507
Intellectual
capital
disclosure
IC is a popular term usedby some companies which depends on theskills, knowledge
and experience o f employees ( Joshi et al., 2012; Curado et al., 2011). The information
technology (IT)sector reflects IC as the productivity of IT companieswhich mainly relies
on the knowledge and innovation of employees (Nimtrakoon, 2015). Joshi et al. (2012)
suggest that “highlyskilled employees, robust trainingand innovation largely decide the
success of such companies”(p. 583). Moreover, the disclosure of IC in IT sector becomes
an important signal to inform stakeholders’affairs of companies, especially in an
increasing competitive world (Abeysekera, 2008; Nimtrakoon, 2015).
Since 1980, China and India have achieved economic growth and poverty reduction
and taken together, these countries constitute over a third of the world’s population
(Bosworth and Collins, 2008). As the Chinese IT services market size is higher than
India, it is believed that the extent and quality of disclosures may vary between the two
countries. Yet only three studies (Xiao, 2008; Yi and Davey, 2010; Liao et al., 2013)
related to Chinese companies. All these studies are cross-sectional. Moreover, little
research compares IC disclosure between two countries. The paper fills in a gap by
examining cross-country IC disclosure by IT companies in China and India.
The purpose of this paper is to examine the extent and quality of voluntary IC
disclosures by IT companies of China and India. The research question being asked is:
RQ1. What is the extent and quality of voluntary IC disclosure by IT companies of
China and India?
This paper examines 20 publicly listed IT companies in each country. Section 2 sets out
the background of the two economies, IT industries and stock markets. Section 3
delineates the literature on IC and prior research. Section 4 describes methods. Section 5
outlines the results and discussion which is followed by Section 6 on conclusion.
2. Economic com parisons: China and India
This section sets the background information on economic comparison, IT and Stock
Exchanges across the two countries to show how they are similar or different. The
background information helps to glean later in the paper our research question:
RQ2. What is the extent and quality of voluntary IC disclosure by IT companies of
China and India?
China and India are developing countries in Asia-Pacific with rapid economic growth.
The GDP growth rates in both countries are relatively higher than developed countries
(Euromonitor International, 2015a, b). For example, the real GDP growth rates of China
and India in 2014 are nearly three times of the real GDP growth rate of the USA in 2014
(Euromonitor Interna tional, 2015a, b).
The gap between rich and poor exists in both China and India. For example,
76 percent of India’s 1.2 billion people live on less than US$ 2 per day (Euromonitor
International, 2015b), and the income of urban households in China is, on average,
several times higher than that of rural households (Euromonitor International, 2015a).
Fujita and Hu (2001) note that globalization and economic liberalization play important
roles in the increasing inequality in China, because of the highly uneven distributions of
trade and foreign direct investment.
IT industry comparisons
IT sector is a broad industry, which contains IT manufacturing and IT usage. IT
manufacturing also includes manufacturing hardware, software telecommunication
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