Intellectual capital disclosures in an emerging economy: status and trends
| Published date | 09 October 2017 |
| Date | 09 October 2017 |
| DOI | https://doi.org/10.1108/JIC-09-2016-0092 |
| Pages | 868-883 |
| Author | Sarishma Sharma,Khushdeep Dharni |
| Subject Matter | Information & knowledge management,Knowledge management,HR & organizational behaviour,Organizational structure/dynamics,Accounting & Finance,Accounting/accountancy,Behavioural accounting |
Intellectual capital disclosures
in an emerging economy:
status and trends
Sarishma Sharma and Khushdeep Dharni
School of Business Studies, Punjab Agricultural University, Ludhiana, India
Abstract
Purpose –The purpose of this paper is to study the status and trend of intellectual capital disclosures by
selected companies in India. Three categories of intellectual capital disclosures across six industry groups
were measured. The relation of the three categories of disclosures, i.e. human capital, relational capital and
structural capital disclosures with the measures of organisational performance such as sales, R&D, R&D
intensity, net profit and export intensity has also been studied.
Design/methodology/approach –Based on National Industrial Classification 2008, six sectors, namely
pharmaceutical, basic metals, industrial manufacturing, energy, financial services and information
technology were included in the study and 20 companies were selected from each sector based on
the availability of data from 2004-2005 to 2013-2014, thus, making a sample of 1,200 firm-years. For collecting
the data, a list of keywords related to various dimensions of intellectual capital was prepared and the count of
keywords was searched in the annual reports of the companies.
Findings –Significant and positive trend coefficients were found in the majority of the sectors. Analysis
revealed that trend coefficients differed across various sectors indicating the presence of sector specificity.
Results of trend analysis reveal that structural capital-related disclosures have stagnated in case of
pharmaceutical sector after hitting the peak. Significant variations were found across sectors in terms of all
three types of intellectual capital disclosures. Results of study empirically support the fact that intellectual
capital disclosures tend to increase with size of the organisation.
Research limitations/implications –As data have been collected from annual reports of the companies,
the accuracy of the findings is limited to the accuracy of the reported data.
Originality/value –The study is an original piece of work. This study provides an insight into the
disclosure trend of intellectual capital in an emerging economy.
Keywords Relational capital, Human capital, Structural capital, Intellectual capital disclosures
Paper type Research paper
1. Introduction
In the contemporary business world, sources of competitive advantage have shifted from
traditional assets to intellectual assets. This change requires the companies to measure,
report and manage these assets. Two competing views, narrower and broader, for
intellectuals are prevalent. Former is related to the components which are internal to an
organisation, while latter is related to the components which are external to an organisation.
According to the narrow view, intellectual assets can be classified as human capital and
organisational capital (Roos et al., 1997; Tovstiga and Tulugurova, 2009). According to
broader view, intellectual assets can be classified as market assets, intellectual property
assets, human-centred assets and infrastructure assets, internal organisation structures,
external organisation structures and the competence of its personnel (Sveiby, 1997), human
capital, social capital and structural capital (Seemann et al., 1999); and Pablos (2002) and
Bozzolan et al. (2003) extended this list by including other components, i.e. structural/internal
capital, external/relational capital and human capital. The researchers have adopted the
broader view as given by Pablos (2002) and Bozzolan et al. (2003) for the categorisation of
intellectual assets, i.e. human capital, relational capital and structural capital.
Human capital includes knowledge, skills and abilities of employees. It is an
organisation’s combined human capability for solving business problems. Human capital is
inherent in people and cannot be owned by organisations. It also encompasses how
Journal of Intellectual Capital
Vol. 18 No. 4, 2017
pp. 868-883
© Emerald PublishingLimited
1469-1930
DOI 10.1108/JIC-09-2016-0092
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1469-1930.htm
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JIC
18,4
effectively an organisation uses its people resources, as measured by creativity and
innovation (Edvinsson and Malone, 1997). Relational capital represents the ability of an
organisation to develop and maintain relations with the customers and stakeholders that
serve long-term interest of both the organisation and customers and stakeholders.
Relational capital implies the existence of organisational knowledge embedded in
relationships with customers, suppliers, investors and partners (Bontis, 1998). Structural
capital includes things such as the organisation’s image, organisation structure, information
system and proprietary databases that enable human capital to function (Edvinsson and
Malone, 1997).
The transition of economy from technology based to knowledge based demanded an
urgent shift of disclosures from tangible and quantitative to intangible and qualitative.
The information disclosed by the organisations varies to a great extent. The organisations
disclose information on intellectual capital in order to provide a comprehensive view of the
activities undertaken by the organisations and its impact on the overall performance of the
organisation. The majority of companies disclose quantitative IC information, with both
financialand non-financial components,rather than intellectual capital(Kang and Gray, 2011).
Keeping in view the increasing importance of intellectual capital disclosures in an emerging
economy like India,present study was undertaken to find outthe trend of intellectual capital
disclosures in six sectors, namely pharmaceutical, energy, basic metals, industrial
manufacturing, financial service and information technology. An attempt has also been
made to correlate these disclosures with selected organisational variables such as size,
profitability and R&D indicators. With increasing importance of intellectual capital,
companies have started communicating their efforts to various stakeholders via number of
channels.Annual reports remain an importanttool of communication. The presentpaper aims
to study the trends of disclosures of various intellectual dimensions in Indian settings.
Furthermore, an attempt has been made to compare different types of intellectual capital
disclosures across various sectors. Such comparison is expected to shed light on the
differencesacross sectors in terms of emphasisingon particular intellectualcapital dimension.
2. Background of the study
Literature provides an evidence that disclosures of information on strategy, customers and
processes (Meca et al., 2005), employee indicators, customer indicators, technology
indicators (Holmen, 2011), copyright, corporate culture, brand, customers, company’s name
and business collaboration (Sharma and Kaur, 2016) have been on an increasing trend.
Most reported items were joint ventures/business collaborations and management
processes, while the least reported items were intellectual property and licensing
agreements (Nasari and Nikfar, 2013). Khan (2011) found that the most commonly disclosed
HC items are information on employee training, number of employees, career development
and opportunities that firms provide, and employee recruitment policies. Razak and
Tobiagi (2016) found that human capital was the most disclosed category in the annual
reports followed by external capital and internal capital. The most reported category of
intellectual capital was internal capital, followed by external capital and human capital was
the least reported category.
Out of the above variables, some may be disclosed statutorily by the organisations and
some may be voluntarily disclosed by the organisations. A study conducted by Kang and
Gray (2011) provides an evidence that majority of companies are engaged in voluntary
disclosure of information. The statutory disclosures of information on intellectual capital
have its roots embellished by the code of law. As of now, the laws governing the statutory
disclosure of information on intellectual capital are barely perceptible which have compelled
the statutory disclosures to dwindle. This has been manifested by the literature studies in
which studies on statutory disclosures have been rarely observed.
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capital
disclosures
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