Trends and relationship among intellectual capital disclosures, patent statistics and firm performance in Indian manufacturing sector
| DOI | https://doi.org/10.1108/JIC-05-2020-0148 |
| Published date | 29 April 2021 |
| Date | 29 April 2021 |
| Pages | 936-956 |
| Subject Matter | Information & knowledge management,Knowledge management,HR & organizational behaviour,Organizational structure/dynamics,Accounting & finance,Accounting/accountancy,Behavioural accounting |
| Author | Khushdeep Dharni,Saddam Jameel |
Trends and relationship among
intellectual capital disclosures,
patent statistics and firm
performance in Indian
manufacturing sector
Khushdeep Dharni and Saddam Jameel
School of Business Studies, Punjab Agricultural University, Ludhiana, India
Abstract
Purpose –This study highlights the trends of qualitative intellectual capital disclosures and patent statistics
in the Indian manufacturing context by considering the numerous patent applications, patent grants, forward
citations and backward citations. Furthermore, the study investigates the relation among qualitative
disclosures, patent statistics and firm performance.
Design/methodology/approach –All manufacturing companies of CNX 500 Index of National Stock
Exchange of India Limited are considered. Based on data availability, 243 manufacturing firms spanning
across seven major manufacturing sectors are included. Secondary data were obtained from the annual report
of companies and patent databases from 2004 to 2005 to 2013–2014, generating a sample of 2,430 firm years.
Content analysis and citation analysis are used for collecting the relevant data.
Findings–Overall, the studyresults indicated increasing trends for all types of intellectualcapital disclosures.
Similar trends are observed for patent applications and patent grants, indicating a surge in patenting activities
across the manufacturing sector. However, increasing trends in patenting activities are not reflected for
forward and backward citations. In addition, significant differences in means and trend coefficients for
qualitative disclosures and patent statistics indicated industry specificity within the Indian manufacturing
sector. Furthermore, industry specificity is observed when translating intellectual capital to firm performance.
The measure of firm performance, that is, Tobin’s Q, is having a significant positive association with
qualitative disclosures and patent statistics.
Researchlimitations/implications –As the study is based on secondary data, its accuracy is limited by the
accuracy of the data sources such as the annual reports of companies and patent databases.
Practical implications –The study findings imply that policymakers should devise and execute sector-
specificpolicy interventions.Moreover, managersand policymakersshould emphasizethe qualitativeaspect of
patenting activities.
Originality/value –The study is an original work that highlights the trends in qualitative disclosures in the
Indian manufacturing context. The value relevance of intellectual capital and patent statistics has been
established.
Keywords Intellectual capital disclosures, Patent applications, Patent grant, Patent citations, Firm
performance
Paper type Research paper
Introduction
The organizational abilityto translate its resourcesand capabilitiesinto competitive advantage
is the key to successin the modern world. Communicating the resourcesand capabilities of the
organization to investors and potential stakeholders is a major challenge for managers. The
source of wealth creation has undergonea paradigm shift from material assetsto intellectual
capitalassets (Goldfinger, 1997 ).Compared with physical assets,intellectual capitalassets have
become a priority for the knowledge economy (Forte et al.,2017). Knowledge creation,
JIC
23,4
936
The authors gratefully acknowledge the funding of this research by National Science and Technology
ManagementInformationSystem (NSTMIS),Departmentof Scienceand Technology,Government of India.
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 11 May 2020
Revised 31 July 2020
6 October 2020
11 January 2021
Accepted 23 March 2021
Journal of Intellectual Capital
Vol. 23 No. 4, 2022
pp. 936-956
© Emerald Publishing Limited
1469-1930
DOI 10.1108/JIC-05-2020-0148
acquisitionand exploitationare the major valuecreation activities(Kianto, 2007;Meritum, 2002;
Lev, 2001). Intellectual capitalinvestments are critical for firmperformance, particularlyin the
manufacturing context (Yam et al., 2011;Kafetzopoulos and Psomas,2015).
Investors are the ultimate evaluators of managerial performance. Therefore, managers
should report firm-level activities involving the creation, acquisition and exploitation of
knowledge resources (Kamath, 2007). Organizational innovation remains a key source for
creating intellectual capital assets. Despite the progress in the given research domain, measuring
innovation remains a daunting task. Firms’R&D expendituresand intensity havebeen termed
as the input measures for the innovation process. R&D expenditures have been used as proxy
for measuring the innovation process. R&D intensity presents a better picture for quantitatively
measuring the innovation process. Managers and investors are more concerned about the output
rather than the input. Patenting activities provide a relatively better approximation of
innovation. Patent information aids in the analysis of the innovation process. Patent statistics,
the new measures of the innovation process, provide vital information regarding an
organization’s innovation process by measuring number of patent applications, patent grants,
backwardcitationsand forward citations. Informationregarding patenting activities and output
is paramountfor the firmvalue. Firms reportintellectualcapital dimensionsthrough qualitative
measures. Investigating the relation between qualitative disclosures and patent statistics can
help identify the efficacy and quality of intellectual capital disclosures.
Studies have suggested that compared with physical capital investments, intellectual
capital investments are rapidly growing (Corrado et al., 2009;Borgo et al., 2012). Furthermore,
studies have indicated the need for exploring the relation between intellectual capital and firm
performance (Subramaniam and Youndt, 2005;Singh and Van der Zahn, 2008;Inkinen, 2015;
Verbano and Crema, 2016). Most studies on intellectual capital pertain to developed nations,
and relatively fewer studies have focused on intellectual capital in the context of developing
countries (Anifowose et al., 2018;Day and Faruq, 2019). In addition, studies (Abeysekera,
2007;Stahle and Bounfour, 2008) have revealed differences in intellectual capital reporting
across developed and developing countries resulting from economic, social and political
factors. However, increased emphasis should be placed on intellectual capital research and its
relation with firm performance in the context of developing countries (Xu et al., 2019).
This study explores the trends in qualitative disclosures and patent statistics in the Indian
manufacturing sector. Furthermore, it investigates the relation among qualitative
disclosures, patent statistics and firm performance.
Study background and hypotheses formulation
The measurement of intellectual capital remains a challenging domain. Most studies based on
IC2 performative stream (Mouritsen et al., 2005) have employed content analysis (Abeysekera
2011;Ienciu et al., 2011;Kang and Gray 2011;Holmen, 2011;Anuradha, 2008;Li et al., 2008;
Finch, 2006;Abdolmohammadi, 2005;Sonnier et al., 2009). Disclosure practices are broadly
classified as quantitative (hard information) and qualitative (soft information) (Catalfo and
Wolf, 2016;Kang and Gray, 2011;Demers and Vega, 2009;Minnis, 2010;Engelberg, 2008;
Petersen, 2004). These disclosures are vital for communicating critical information related to
intellectual capital to attract investment (Giacosa et al., 2017;Wyatt and Abernetny, 2008;
Gelb, 2002;Barth et al., 2001). Moreover, firms indicate earnings (Su and Wells, 2014;Ling,
2013;Roulbtone, 2011;Carmeli and Azeroual, 2009;Ritter and Wells, 2006;Doukas and
Padmanabhan, 2002;Barth and Kasznik, 1999), financial (Godfrey and Kon, 2001;Bosworth
and Rogers, 1998;Hwang and Basu, 1996) and market valuation (Behname et al., 2012;Khedri,
2012;Riedel, 2011;Boulerne et al., 2011;Ritter and Wells, 2006) through quantitative and
qualitative disclosures. Lately, qualitative disclosures have emerged as an important
paradigm in the investor communication domain and for reaching out to other stakeholders.
Qualitative disclosures help investors bridge the gap between the financial statements and
Intellectual
capital and
patent
statistics
937
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