The influence of corporate governance characteristics on human capital disclosure: the moderating role of managerial ownership
| DOI | https://doi.org/10.1108/JIC-03-2019-0055 |
| Published date | 05 September 2020 |
| Date | 05 September 2020 |
| Pages | 342-374 |
| Subject Matter | Information & knowledge management,Knowledge management,HR & organizational behaviour,Organizational structure/dynamics,Accounting & finance,Accounting/accountancy,Behavioural accounting |
| Author | Francisca Tejedo-Romero,Joaquim Filipe Ferraz Esteves Araujo |
The influence of corporate
governance characteristics
on human capital disclosure:
the moderating role of
managerial ownership
Francisca Tejedo-Romero
Department of Business Administration, University of Castilla-La Mancha,
Albacete, Spain, and
Joaquim Filipe Ferraz Esteves Araujo
School of Economics and Management, University of Minho - Campus de Gualtar,
Braga, Portugal
Abstract
Purpose –The main objective of this paper is to analyse the content and extent of human capital disclosure by
Spanish companies. It studies various factors related to the board of directors’composition and functioning.
These factors can be seen as mechanisms of corporate governance and the moderating role of managerial
ownership, which help predict the behaviour of managers in relation to the human capital disclosure.
Design/methodology/approach –This study develops and applies a more comprehensive framework for
coding information on human capital, integrating the intellectual capital and social responsibility perspectives
in order to explain the content and extent of human capital disclosure. The research was based on a content
analysis of 210 corporate reports from 2007 to 2016. A system-GMM estimator was used to test the hypotheses
in four dynamic linear regression models of balanced panel data in order to address concerns of endogeneity.
Findings –The results show that companies are adapting to new regulations and voluntarily disclosing
information on human capital –a trend which signals their commitment to responsible attitudes towards
employees and stakeholders. The results also show that board composition and functioning are mechanisms of
supervision, control and legitimacy that promote human capital disclosure, with managerial ownership acting
as moderator for aligning interests between managers and stakeholders.
Originality/value –This study contributes to the literature on human capital disclosure by introducing a
broader conception of human capital to coding information. It accomplishes this through considering aspects of
the intellectual capital and social responsibility approaches, which provide a better understanding of
companies’human capital disclosure. In addition, it seeks to enrich the debate about the effects of corporate
governance mechanisms–such as boards of directors and managerial ownership –on human capital
disclosure.
Keywords Corporate governance, Human capital disclosure, Social responsibility, Intellectual capital,
Corporate reports
Paper type Research paper
1. Introduction
Companies are operating in a competitive global environment characterized by knowledge-
based economies (Bontis and Fitz-enz, 2002;Mariano and Walter, 2015;Olander et al., 2015),
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This study was conducted at the Research Center in Political Science (UIDB/CPO/00758/2020),
University of Minho/University of
Evora and partially supported by the Portuguese Foundation for
Science and Technology (FCT) and the Portuguese Ministry of Education and Science through national
funds.
Funding: This study was partially supported by the Department of Business Administration -
University of Castilla-La Mancha.
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1469-1930.htm
Received 22 March 2019
Revised 31 October 2019
13 December 2019
31 March 2020
27 June 2020
Accepted 12 August 2020
Journal of Intellectual Capital
Vol. 23 No. 2, 2022
pp. 342-374
© Emerald Publishing Limited
1469-1930
DOI 10.1108/JIC-03-2019-0055
the growing importance of intangible resources (Guthrie and Petty, 2000;Cuozzo et al., 2017;
Corvino et al., 2019), greater interest in social responsibility (SR) and corporate governance
(CG) (Rodrigues et al., 2017;Barrena-Martinez et al., 2019;Gallardo-V
azquez et al., 2019), and
by the increasing demand for more corporate information from markets, organizations, users,
suppliers and other relevant stakeholders (Tejedo and Araujo, 2016).
Authors such as Guthrie and Petty (2000),Edvinsson (2013),Abhayawansa (2014),Cuozzo
et al. (2017) and Corvino et al. (2019), among others, have considered that intellectual capital
(IC) –i.e. an organization’s reputation and image, employee motivation, as well as its ability to
innovate and launch new products and services in the market, and to establish a stable
relationship with clients and suppliers (Castilla-Polo and Ruiz-Rodriguez, 2017, p. 506) –is a
crucial intangible resource to the success of contemporary organizations. Among the three
categories of IC [human capital (HC), relational capital and structural capital (Stewart, 1997;
Bontis, 1999;Abhayawansa and Abeysekera, 2008;Guthrie et al., 2006;Gamerschlag, 2013;
Dumay, 2016)], HC is recognized as the most important element in terms of creating long-term
competitive advantage (Beattie and Smith, 2010;Cabrilo et al., 2014;Amankwah-Amoah,
2018;Torres et al., 2018). HC refers to factors such as the knowledge, skills, attitudes,
creativity, aptitude and commitment possessed by employees of an organization (Bontis and
Fitz-enz, 2002;Abhayawansa and Abeysekera, 2008;Gamerschlag, 2013;Pisano et al., 2017).
Knowledge management practices can help companies retain employee talent and
improve their competitive advantages (Bontis and Fitz-enz, 2002;Mariano and Walter, 2015;
Torres et al., 2018). Tejedo and Araujo (2016) and Frangieh and Yaacoub (2019) point out that
workplace relationships improve when companies engage in socially responsible human
resource management practices such as avoiding discrimination and promoting equality, and
encouraging the participation and education of their employees, among others. These
practices help to attract, retain, and motivate workers, and to improve their engagement with
the company. They are an important aspect of SR in order to be consistent with the ethical,
labour and social requirements demanded by employees and by society in general. According
to Pedrini (2007), corporate responsibility practices aimed at improving intangible resources,
specifically knowledge resources –generate better financial performance and long-term
sustainability (Adams and Larrinaga-Gonz
alez, 2007;Cooper and Owen, 2007;Edvinsson,
2013;Gallardo-V
azquez et al., 2019).
The European Commission (2011) suggests that the disclosure of social information,
including information on HC, can facilitate engagement and build trust between companies
and stakeholders. Consequently, HC disclosure could be a key method for providing
stakeholders with the information they need to assess a company’s actions concerning its
employees. In this context, the desire of companies to meet the needs of employees, other
stakeholders and the general concern to ensure socially responsible behaviour (Tejedo and
Araujo, 2016) provided the impetus for this research to identify the position of companies
concerning the necessity of disclosing information about HC.
Researchers have typically used the content analysis methodology to study the nature and
the extent of companies’HC disclosure. Regarding the content of the information on HC, prior
studies have generally investigated HC disclosure from either an IC perspective or a SR
perspective in isolation. As discussed above, an IC perspective takes into consideration
aspects related to employees’cumulative knowledge and capabilities, which influence a
company’s value and competitive advantage (Abhayawansa and Abeysekera, 2008;Bontis
and Fitz-enz, 2002;Jindal and Kumar, 2012;Edvinsson, 2013;Cabrilo et al., 2014;Corvino et al.,
2019). Likewise, other researchers have also studied HC in relation to SR, considering the
“triple-bottom line”concept of sustainable development (Gray et al., 1996;Hackston and
Milne, 1996;Adams and Larrinaga-Gonz
alez, 2007;Gallardo-V
azquez et al., 2019). This
approach focuses on social and ethical issues surrounding the relationships between workers
and companies (Muttakin and Khan, 2014;Wang, 2017;Yu et al., 2017;Cui et al., 2018).
Influence of CG
characteristics
on HC
disclosure
343
Previous studies using content analysis have endeavoured to understand the content and
level of HC disclosed by companies, but the findings of these studies provide mixed results.
Some studies suggest that differences between the various components and categories of the
HC, as well as overall levels of HC disclosure reflect the relative importance given by
companies to these issues (see, Abhayawansa and Abeysekera, 2008;Jindal and Kumar, 2012;
Muttakin and Khan, 2014;Yu et al., 2017). Additionally, the lack of a consistent method to
define, measure and report HC makes it difficult to set a common coding framework and to
study HC disclosure (Castilla-Polo and Ruiz-Rodriguez, 2017;Pisano et al., 2017). Given this
context, Abhayawansa and Abeysekera (2008) argue that a gap arises from the different
conceptualizations of HC, and that future studies not only need to conceptualize HC as the
stock of knowledge but also to take into account the specificity of that knowledge to the firm,
the idiosyncratic human resource management practices as well as the social fabric
embedded in the organization (Abhayawansa and Abeysekera, 2008). To address these
limitations, this study begins to bridge the gap in the HC disclosure literature with the
intention of proposing, developing and applying a more comprehensive and complete
framework for coding information on HC. Based on the literature review, it enhances the
conceptualization of HC by integrating both the IC and SR perspectives, which had
previously been studied in isolation.
HC disclosure has the potential to play a fundamental role in stakeholders’decision-
making processes. However, issues regarding the access of information can occur. For
example, information asymmetries can arise between various parties, inside or outside the
company, i.e. between managers and owners, or between managers and stakeholders.
The existence of information asymmetries can lead to opportunistic behaviour on behalf of
the management (Li et al., 2008;Wang, 2017). A high level of HC disclosure provides a more
intensive monitoring mechanism for a company to reduce opportunistic behaviour and
information asymmetry between a company’s management and its stakeholders (Hill and
Jones, 1992;Michelon and Parbonetti, 2012). As suggested by Caputo et al. (2016), it is possible
to assert that voluntary disclosure about HC could, if correctly managed, be a useful
instrument for reducing relevant information gaps. Given these findings, it seems worthwhile
to study whether the way companies are governed can influence the information policy on HC
disclosure.
In this regard, and according to the literature (Cerbioni and Parbonetti, 2007;Li et al., 2008),
an effective monitoring mechanism has been CG, which plays an important role in reducing
information asymmetries and solving agency conflicts (Abeysekera, 2010;Frias-Aceituno
et al., 2013;Rodrigues et al., 2017). According to the agency-stakeholders and resource-based
theories, the Board of Directors (BD) is one mechanism of CG for supervising and monitoring
managerial actions (Dienes and Velte, 2016;Fuente et al., 2017), not only to reduce agency cost
but also to uphold companies’public image and reputation before the stakeholders (Tejedo
and Araujo, 2016). Michelon and Parbonetti (2012) argue that voluntary disclosure policies
emanate from the BD, which is the “apex of the decision-making process”(Kassinis and
Vafeas, 2002, p. 400) and is responsible for social strategy (Bear et al., 2010;Amran et al., 2014;
Fuente et al., 2017). Legitimacy theory suggests that the BD can be seen as a mechanism of
legitimacy, because its role is to ensure that the company is managed efficiently, with top
managers overseeing operations and ensuring that stakeholders’interests are taken into
account at the highest levels of the decision-making process (Michelon and Parbonetti, 2012;
Frias-Aceituno et al., 2013).
Some papers have analysed the link between specific characteristics of the BD and IC
disclosure or SR disclosure (e.g. Cerbioni and Parbonetti, 2007;Li et al., 2008;Abeysekera,
2010;Rodrigues et al., 2017;Cucari et al., 2018). As reported by Michelon and Parbonetti (2012)
when it comes to the relationship between different board characteristics and sustainability
disclosures, voluntary disclosure can be conditioned by certain attributes of the BD, such as
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