Intellectual capital disclosure in Chinese (mainland) companies
| Published date | 27 July 2010 |
| Pages | 326-347 |
| DOI | https://doi.org/10.1108/14691931011064572 |
| Date | 27 July 2010 |
| Author | An Yi,Howard Davey |
| Subject Matter | Accounting & finance,HR & organizational behaviour,Information & knowledge management |
Intellectual capital disclosure in
Chinese (mainland) companies
An Yi and Howard Davey
Department of Accounting, University of Waikato, Hamilton, New Zealand
Abstract
Purpose – The purpose of this paper is to report research on the extent and quality of intellectual
capital (IC) disclosure of Chinese (mainland) companies that have dual listed A and H shares.
Design/methodology/approach – A comprehensive IC disclosure index was constructed in the
study to code, using content analysis methods, the annual reports of 49 dual-listed companies in
mainland China.
Findings – Consistent with previous research, the current level of IC disclosure by mainland Chinese
companies is not high. Most of the reported IC attributes are expressed in discursive rather than
numerical or monetary terms. However, the average number of items disclosed is high enough to
suggest that there is a clear awareness of the significance of IC disclosure. While the disclosure quality
is not considered strong, it does suggest that the companies have a modest commitment in
communicating their IC information to an external audience.
Research limitations/implications – The research only examines the dual listed companies
covering a one-year period from the 2006 annual reports.
Practical implications – IC disclosure in China is an important part of the movement to greater
transparency. Increased appreciation of the levels of IC disclosure may encourage greater debate over
IC disclosure in that country.
Originality/value – This paper reviews one of the few research studies of IC disclosure in mainland
China. The research also incorporates a quality index of the disclosure.
Keywords Intellectualcapital, Disclosure, Quality, Annualreports, China
Paper type Research paper
1. Introduction
The new economy is characterized by the emergence of globalization, the spread of
internet and information technology, and the prevalence of soft, intangible and human
factors within organizations, such that the process of value creation for companies has
changed (Cordazzo, 2007; Tayles et al., 2007). Owning the best machinery and
equipment no longer necessarily secures firms a competitive edge in the fierce global
competition because technology is easily accessible (Wong and Gardner, 2005).
Intellectual capital (IC) takes many forms: management processes, intellectual
property, brand and reputation, business p artnership, supplier and customer
relationships, staff competencies, etc. It is increasingly recognized as a key value
driver to create and sustain competitive advantage for companies (Li et al., 2008; Ghosh
and Wu, 2007). Some of the most successful firms are those with significant intellectu al
capital but relatively fewer fixed assets, such as Microsoft, Google, and Oracle.
With the growing awareness of the importance of IC, many managers attempt t o
disclose the intellectual capital of their companies in annual reports on a voluntary
basis to reduce the information asymmetry and improve the transparency between
management and various stakeholders (Guthrie and Petty, 2000; Pablos, 2002;
Schneider and Samkin, 2008; Vergauwen et al., 2007). Intellectual capital is, however,
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1469-1930.htm
JIC
11,3
326
Journal of Intellectual Capital
Vol. 11 No. 3, 2010
pp. 326-347
qEmerald Group Publishing Limited
1469-1930
DOI 10.1108/14691931011064572
difficult to capture and measure. There is no widely accepted accounting framework
for IC disclosure around the world. Thus the current status of IC disclosure throughout
the world is limited and highly variable.
Research on IC disclosure has grown in significance in the past two decades
(Garcı
´a-Meca et al., 2005). Tan et al. (2008) provide a useful reference on the stages of
development of IC, its application to business and management issues and the
application of IC research in different cultural contexts. Many of the studies in the field
are cross-sectional and country specific (Li et al., 2008), for example, Australia (Guthrie
and Petty, 2000), Canada (Bontis, 2003), Ireland (Brennan, 2001), India (Kamath, 2007,
2008), Italy (Bozzolan et al., 2003), Japan (Mavridis, 2004), Malaysia (Goh and Lim,
2004), New Zealand (Wong and Gardner, 2005; Whiting and Miller, 2008), Singapore
(Tan et al., 2007), Spain (Oliveras et al., 2008), Sri Lanka (Abeysekera and Guthrie,
2005), Taiwan (Chen et al., 2005), UK (Williams, 2001). These studies provide insights
regarding the level of IC reporting in a particular country across various industrial
sectors. However, among the studies, only three of them – Malaysia (Goh and Lim,
2004), Sri Lanka (Abeysekera and Guthrie, 2005) and India (Kamath, 2008) – relate to
developing countries. There has been minimal IC disclosure research in mainland
China, the largest developing country and one of the fastest growing economies in the
world. This paper reviews research that starts to address this gap by examining the
extent and quality of IC disclosure by 49 dual-listed A and H share firms in mainland
China.
The first section of the paper reviews the Chinese stock market followed by a
literature review on IC disclosure in a national context. The research study is described
followed by the methods, results and discussion. The final section draws conclus ions
including implications and future research directions of this research.
2. The Chinese stock market
Since the Chinese government implemented economic reform in 1978, the economy of
China had undergone dramatic development. Both GDP and individuals’ income have
grown rapidly. During this period, the Chinese government attempted to attract capital
infusion in the state-owned enterprises in order to improve the performance of the
companies (Seddighi and Nian, 2004; Zhang and Zhao, 2004). Simultaneously, Chinese
enterprises have demanded new channels for raising capital and individuals have
sought new investment opportunities rather than merely putting money in banks at
low interest rates. In November 1990, the first stock exchange was established in
Shanghai; several months later in April 1991, the Shenzhen stock exchange
commenced operations. The Chinese market has since grown to be the largest
emerging share market in the world (Zhang and Zhao, 2004).
The Chinese (mainland) stock market is unique in that the shareholding structure of
the listed companies is heterogeneous. Specifically the listed firms in mainland China
can be classified into domestic shares and foreign shares (see Figure 1). The domestic
shares, namely A-shares, can be further divided into three classes including
state-owned shares, institutional shares and public shares. The state-owned shares and
institutional shares are non-circulation A-shares that cannot be traded at stock
exchanges. The institutional shares can be traded among institutions through
Securities Trading Quotation System (an over-the-counter market). The public shares,
generally called circulation A-shares, can be traded in both the Shanghai and Shenzhen
Intellectual
capital disclosure
327
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