Intellectual capital disclosure in integrated reporting: an impression management analysis
| Published date | 13 July 2015 |
| Pages | 661-680 |
| DOI | https://doi.org/10.1108/JIC-11-2014-0121 |
| Date | 13 July 2015 |
| Author | Gaia Melloni |
| Subject Matter | Information & knowledge management,Knowledge management |
Intellectual capital disclosure in
integrated reporting: an
impression management analysis
Gaia Melloni
Department of Accounting, Bocconi University, Milano, Italy
Abstract
Purpose –Intellectual capital (IC) is fundamental to understanding how firms create value; however,
current IC disclosure (ICD) has been described as inadequate due to the lack of an established IC
framework and companies’actual commitment to report IC information. The International Integrated
Reporting Council aims to foster ICD by means of integrated reporting (IR); such a report should
display how IC and other forms of capital (e.g. financial) contribute to value creation over time.
Drawing on impression management (IM) studies, the purpose of this paper is to assess the quality of
ICD offered in IR.
Design/methodology/approach –A manual content analysis of all the reports available in the
International Integrated Reporting Council web site is run considering both the content of ICD and
specific linguistic attributes (evidence, time orientation and tone). In addition, the study tests the
relationship between the positive ICD tone and specific characteristics that may incentive managers to
manipulate their disclosure to determine whether firms use ICD to manage public perceptions of
corporate behaviour.
Findings –The results of the content analysis show that majority of ICD is focused on relational
capital, with limited quantitative and forward-looking information. Additionally, compared to non-ICD,
ICD is significantly more optimistic. Furthermore, the positive tone of ICD is significantly associated
with declining performance, bigger size and higher level of intangibles supporting the use of ICD as an
IM strategy.
Originality/value –The research contributes to the literature offering evidence of the quality of the
ICD offeredin the IR and demonstratingthat ICD offered inthe IR is used by managers opportunistically
to advance their image.
Keywords Intangibles, Disclosure quality, Intellectual capital, Impression management,
Integrated reporting
Paper type Research paper
1. Introduction
Firms experience strong pressure to communicate how they manage both their financial and
non-financial capital: information on intellectual capital (IC) is fundamental to understand
how firms create value (Zambon and Marzo, 2007; Abhayawansa and Guthrie, 2010; EY,
2014), and it constitutes a key starting point for investors’analysis (Gamerschlag, 2013).
However, previous studies consistently describe a low observed level of IC disclosure (ICD)
(Beattie and Thomson, 2007), due to the lack of both an established IC reporting framework
and companies’proactive efforts to report externally IC information (Guthrie and Petty, 2000).
Some scholars argue that integrated reporting (IR) could enhance ICD by portraying
a holistic view of the firm value creation process that embeds, but is not limited to,
IC information (Abhayawansa, 2013; Beattie and Smith, 2013). IR explicitly involves
Journal of Intellectual Capital
Vol. 16 No. 3, 2015
pp. 661-680
©Emerald Group Publis hing Limited
1469-1930
DOI 10.1108/JIC-11-2014-0121
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1469-1930.htm
The author is grateful to the editors and the two anonymous reviewers for their insightful
comments and to the attendees to the 10th Interdisciplinary Workshop on Intangibles, Intellec-
tual Capital and Extra-Financial Information held in Ferrara in September 2014, for their useful
suggestions.
661
Intellectual
capital
disclosure
the provision of a complete picture of firms’value creation process, by connecting
financial and non-financial information, including IC information, in one report
(International Integrated Reporting Council (IIRC), 2013). In the IIRC project, IC is a
fundamental concept, underpinning IR preparation (IIRC, 2013); however, there is
no guarantee that IR adopters provide informative disclosures about their IC.
This study investigates the quality of ICD offered in the IR. Although an emerging
literature stream investigates the determinants of IR adoption (Jensen and Berg, 2012;
Sierra‐García et al., 2013; Frias-Aceituno et al., 2013, 2014; Lai et al., 2014), no studies
assess the quality of the ICD provided in IR. Dumay and Cai (2014) call for research
analysing the ICD offered in the IR; the current study is an attempt to respond to this
call and draws on the impression management (IM) framework (Brennan et al., 2009;
Cho et al., 2010) to determine whether firms offer ICD to advance their corporate image,
in lieu of providing useful information. Despite previous studies raise the concern that
ICD in the context of corporate reporting could be described as “one sided reports
of good news, deliberately avoiding any bad news”(Dumay, 2012, pp. 9-10), there is a
lack of studies assessing the adoption of IM in ICD.
In order to evaluate the quality of ICD, the study seeks an answer to two related
research questions to understand the role of IR in disclosing IC information:
RQ1. How do firms offer ICD in the IR?
In line with Abhayawansa (2011), this study evaluates the qualitative characteristic s of
ICD by mean of a manual content analysis adopting a multidimensional framework
based on both the content and specific linguistic attributes. For the content addressed,
a common taxonomy used in IC studies recognizes three main categories of capital:
structural, human and relational (Beattie and Smith, 2013). In addition, drawin g on the
IIRC framework requirements, the coding distinguish information based on “the topic”of
capitals disclosure: capitals as “inputs”or capital as “outcomes”. The linguistic attributes
considered are the type of evidence provided (quantitative vs non-quantitative), the time
orientation (forward looking vs non-forward looking) and the tone of the information
(positive vs non-positive).
Second, after the reliability assessment and validation of the content analysis, the
data obtained are used for answering the second research question:
RQ2. Do mangers adopt IM strategy in the ICD offered in the IR?
This research question is answered by testing a set of hypotheses on the relation
between the positive tone of ICD and firms’specific characteristics which may give
them incentives to use IM strategies. The choice of these variables is also consistent
with previous studies exploring factors that explain differences in the ICD behaviours
between companies (e.g. Bozzolan et al., 2003, 2006; Cerbioni and Parbonetti, 2007).
The remainder of the paper is organized as follows: the next section describes the
notion of IC in the context of the IR project; the third section presents the theoretical
framework and related hypotheses development. Section 4 contains an explana tion of
the empirical analysis method and Section 5 presents the results of this analysis.
Finally, this paper concludes with a discussion of the evidence provided, as well as
some research limitations and implications.
2. The relation betwe en IC and IR
In general, IC refers to all intangible resources that create company value (Ashton,
2005), in contrast with financial and physical capital, which refer to the tangible
662
JIC
16,3
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