A methodology for investigating intellectual capital information in analyst reports
| DOI | https://doi.org/10.1108/14691931111154733 |
| Date | 26 July 2011 |
| Published date | 26 July 2011 |
| Pages | 446-476 |
| Author | Subhash Abhayawansa |
| Subject Matter | Accounting & finance,HR & organizational behaviour,Information & knowledge management |
A methodology for investigating
intellectual capital information in
analyst reports
Subhash Abhayawansa
Faculty of Business and Enterprise, Swinburne University of Technology,
Hawthorn, Australia
Abstract
Purpose – The purpose of this paper is to describe a methodology that enables the generation of
valid and reliable inferences on what and how intellectual capital (IC) information is communicated by
sell-side analysts in their research reports.
Design/methodology/approach – The method described in this paper involves content-analysing
initiating coverage analyst reports using a four-dimensional IC coding framework and a detailed
coding instrument, which is founded in the literature and indigenous to analyst reports. The paper
explicates methodological decisions associated with content analysis: selecting the appropriate
sampling unit; recording unit and measurement unit; developing the categorisation scheme and coding
instrument; the need for test coding; the approach to data collection; and assessment of reliability and
validity.
Findings – The methodology described is applied to a sample of analyst reports to illustrate
inferences that can be drawn on what and how IC information is communicated in analyst reports.
Practical implications – Various practical issues arising in the application of content analysis
method are discussed and a methodology for investigating IC communications by sell-side analysts is
described in this paper. This kn owledge can be useful to future rese archers conducting
content-analytic studies involving analyst reports in general, and IC communications in analyst
reports in particular.
Originality/value – This paper extends the methodology developed previously to examine IC
information in analyst reports. Although inspired and heavily influenced by these works, the
methodology presented in this paper differs from theirs on several fronts. The paper introduces an
alternative methodological paradigm to the study of analyst reports by emphasising them as a
communication medium through which sell-side analysts may pursue an agenda of their own. This is
contrasted with the view held by several prior researchers that analyst reports just provide a record of
analysts’ thought processes.
Keywords Analystreports, Content analysis,Intellectual capital,Sell-side analysts, Financialreporting,
Financial analysis
Paper type Research paper
1. Introduction
A significant proportion of a company’s valuation is linked to intellectual capital(IC)[1].
Some accounting researchers point at the difference between a company’s market and
book value as evidence of the proportion of its value linked to IC (e.g. Brennan, 2001;
Ordon
˜ez de Pablos, 2003; Stewart, 2003; Sullivan, 2000; Sveiby, 1989). Although
non-recognition of IC in financial statements is not the only cause of disparity between
the book value and market value of a company, some proportion of this gap can be
attributed to it (Amir and Lev, 1996; Beattie and Thomson, 2005; Lev and Sougiannis,
1999). Given the nexus between IC and firm value, accounting researchers have shown
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1469-1930.htm
JIC
12,3
446
Journal of Intellectual Capital
Vol. 12 No. 3, 2011
pp. 446-476
qEmerald Group Publishing Limited
1469-1930
DOI 10.1108/14691931111154733
an interest in understanding what types of IC information is important to the capital
market. IC information concerns information on a company’s existing stock of
intellectual capital and “a business’s efforts to grow its intellectual capital for sustained
value creation” (Fincham and Roslender, 2003a, p. 783).
Studies on the usefulness or importance of types of IC information in firm valuation
have employed different research methods, such as capital markets research using
association and event studies; interviews, surveys and experimentations with capital
market participants; analysis of their verbal protocols; and content analysis of analyst
reports (for a review of literature on the valuation impact of IC, see Abhayawansa and
Guthrie, 2010). Although each of these research methods provides a unique perspective
to understand the types of IC information used by or useful/important to capital
market participants, content analysis of analyst reports has been a particularly popular
method with researchers.
In the IC discourse, prior content-analytic studies of analyst reports appear to be
predominantly interested in measuring the extent to which various categories of IC are
cited in analyst reports to assess the importance sell-side analysts (hereafter
“analysts”) attach to them or their valuation relevance. In doing so these studies have
failed to identify and acknowl edge the importance of analyst re ports as a
communication medium through which analysts attempt to push their agenda for
the company they write about. It has been argued that analysts not only disseminate
information relevant to their forecasts and recommendations through analyst reports,
but also attempt to convince readers about their opinions and present arguments
supporting them (e.g. Nielsen, 2008; Previts et al., 1994; Rogers and Grant, 1997). There
is evidence suggesting that analysts are optimistically biased when writing reports
(e.g. Das et al., 1998; Dechow et al., 2000; Dugar and Nathan, 1995; Fogarty and Rogers,
2005; Lin and McNichols, 1998) and different information in their reports are targeted
at different users simultaneously due to the conflicting incentives they face
(Malmendier and Shanthikumar, 2006). As a result, not only what information is
communicated, but also how it is communicated by analysts has a significant bearing
on a firm’s market value (Dannhauser, 2009). This alternative perspective is
particularly important in the investigation of IC information in analyst reports given
the amenability of this information in furtherance of the communicator’s agenda.
Hence, how IC information is communicated in analyst reports becomes and important
research proposition.
This paper introduces a methodology based on content analysis to investigate what
as well as how IC information is communicated through analyst reports. It addresses
the issues faced by the content analyst and justifies the decisions made by referring to
authorities on content analysis and the extant literature. The cornerstone of this
methodology is a four-dimensional coding framework for coding IC references in
analyst reports into topic and three attributes of communication:
(1) evidence (i.e. whether IC information is communicated discursively,
quantitatively or visually);
(2) news tenor (i.e. whether IC information is communicated positively, neutrally or
negatively); and
(3) time orientation (i.e. whether IC information is communicated in a
forward-looking, non-time specific or past-oriented manner).
Investigating IC
information in
analyst reports
447
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