The influence of integrated reporting and internationalisation on intellectual capital disclosures
| DOI | https://doi.org/10.1108/JIC-03-2018-0059 |
| Pages | 40-59 |
| Published date | 07 December 2018 |
| Date | 07 December 2018 |
| Author | Wendy Terblanche,Charl De Villiers |
| Subject Matter | Accounting & Finance,HR & organizational behaviour,Accounting/accountancy,Information & knowledge management |
The influence of integrated
reporting and internationalisation
on intellectual capital disclosures
Wendy Terblanche
University of Fort Hare, East London, South Africa, and
Charl De Villiers
The University of Auckland, Auckland, New Zealand and
University of Pretoria, Pretoria, South Africa
Abstract
Purpose –The purpose of this paper is to examine whether preparing an integrated report and/or whether
cross-listing is associated with more intellectual capital (IC) disclosure.
Design/methodology/approach –The paper compares the content of IC disclosures of matched samples
of companies.
Findings –The findings show that companies preparing an integrated report disclose more IC information,
and that companies exposed to international capital market pressures through cross-listing do not disclose
more IC information.
Research limitations/implications –The findings imply that integrated reporting (IR) is likely to increase
IC disclosures and also that future IC disclosure research may have to take into account whether companies
prepare an integrated report.
Practical implications –The results will be of interest to the proponents of IC and of IR, including the
developers of the IR framework, regulators and companies considering IR.
Originality/value –This is one of the first studies to assess the influence of preparing an integrated report
on the level of IC disclosure.
Keywords Integrated reporting, Intellectual capital, Intellectual capital disclosure, Voluntary disclosure,
Internationalisation
Paper type Research paper
1. Introduction
In a recent paper, de Villiers and Sharma (2018) critically assess the influence of integrated
reporting (IR) on intellectual capital (IC) disclosures, concluding that the renewed interest IR
brings to IC will benefit IC research and disclosure. IR is a move to combine disclosures of
six capitals, including the three IC capitals, in an integrated manner (de Villiers et al., 2014;
Guthrie et al., 2017; de Villiers, Hsiao and Maroun, 2017; de Villiers, Venter and Hsiao, 2017).
de Villiers and Sharma (2018) do not provide any empirical evidence to support
their argument that IR will increase IC disclosure. This paper aims to provide such evidence
by utilising the unique setting of South Africa, where local listed companies have to
prepare an integrated report or explain why they do not[1] (in practice, almost all
of them prepare an integrated report, instead of an annual report), but where companies
listed on the Johannesburg Stock Exchange ( JSE) as a secondary listing (i.e. their primary
listing is somewhere else) can choose whether they prepare an integrated report or not
(in practice, about half of them prepare an integrated report while the other half do not).
Companies with secondary listings on the JSE have a primary listing in the developed world,
e.g., on the London Stock Exchange. Managers of companies listed on more than one stock
exchange, withinvestors from more than one societalsetting, may feel the need to disclose the
IC information expected in each listing location. Prior studies provide evidence in support of
this notion, finding that companies listed on multiple stock exchanges voluntarily
disclose more financial information (Ahmed and Courtis, 1999; Broberg et al., 2010;
Journal of Intellectual Capital
Vol. 20 No. 1, 2019
pp. 40-59
© Emerald PublishingLimited
1469-1930
DOI 10.1108/JIC-03-2018-0059
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
20,1
Meek and Gray, 1989). Similar findings have been reported for corporate socialresponsibility
disclosures (Fifka, 2013; Hackston and Milne, 1996) and for IC disclosures (Kang and Gray,
2011; Oliveira et al., 2006). The South African setting allows the authors to test whether
companies that prepare an integrated report disclose more IC information, and whether
companies with exposure to an international market disclose more IC information. While
Melloni (2015) investigates IC disclosuresin integrated reports and finds the IC disclosures to
be optimistic and used for opportunistic purposes, she does not examine whether companies
that produce an integrated report disclose more IC information.
Initially, IC research was dominated by normative arguments for the disclosure of IC as
well as normative disclosure frameworks (Guthrie et al., 2012). This was followed by a stage
characterised by content analyses, initiated by the seminal research by Guthrie and Petty
(2000). During this stage, the most important question being asked was what is being
disclosed. IC research is now said to have entered several new stages, namely, the third,
more critical stage (Dumay and Garanina, 2013; Guthrie et al., 2012), and a fourth stage of
systemic IC research has been suggested (Dumay and Garanina, 2013) and further
developed by Secundo et al. (2016). Recently, Dumay et al. (2018) suggest a fifth stage of IC
research without boundaries as a worthwhile enterprise. Better, more nuanced
understandings are now being formed about the causal relationships at work around IC
disclosure. This paper aims to contribute to these understandings by focussing on the
reasons for companies to disclose more IC information. Therefore, this paper is not just
interested in what kind of IC is disclosed, or to lament about how little is disclosed, which
Dumay and Cai (2014) warn against, rather the paper examines whether internationalisation
and/or IR are associated with more IC disclosure.
Therefore, the paperuses content analysis to investigate thefollowing research questions:
RQ1. Do companies disclose more IC information when they are exposed to additional
international markets?
RQ2. Do companiesdisclose more IC informationwhen they produce an integratedreport?
This study uses a matched sample (based on industry and size) of companies that are
cross-listed with those that are only listed on the JSE. The companies only listed on the JSE
prepared integrated reports, whereas half of the cross-listed companies prepared an
integrated report. The paper content analyses the primary corporate annual reports of the
sample of companies, being annual reports for some and integrated reports for others, using
the disclosure index of Abeysekera and Guthrie (2005), as modified by Wagiciengo and
Belal (2012).
The findings show that more IC is disclosed by the preparers of integrated reports, not
by cross-listed companies. This paper is amongst the first to investigate IC disclosure in
integrated reports. The findings may inform the further development of IR guidelines by the
IIRC. For example, the IR guidelines may be expanded to provide more specific guidance on
IC disclosures. Regulators may use the results as an input when considering whether to
mandate IR. For example, regulators may consider mandating IR in order to enhance IC
disclosures. The results improve the understanding of the impact of IR and
internationalisation on IC disclosure.
2. Literature review
Voluntary disclosure involves disclosure in the excess of mandated requirements that
managers of a company may deem to be relevant (White et al., 2007; de Villiers and Vorster,
1995; de Villiers, 1998). Prior research has investigated why managers choose to voluntarily
disclose non-financial information (Beattie and Smith, 2012; de Villiers, 1999; Marr et al.,
2003). Reporting of non-financial information has been found to be value-relevant, reducing
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IC disclosures
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