Voluntary disclosures of intellectual capital. An empirical analysis
| Date | 19 April 2011 |
| Pages | 301-318 |
| DOI | https://doi.org/10.1108/14691931111123430 |
| Published date | 19 April 2011 |
| Author | Sukhdev Singh,Monika Kansal |
| Subject Matter | Accounting & finance,HR & organizational behaviour,Information & knowledge management |
Voluntary disclosures of
intellectual capital
An empirical analysis
Sukhdev Singh
Department of Business Management, Guru Nanak Dev Engineering College,
Ludhiana, India, and
Monika Kansal
University Business School, Panjab University Regional Centre,
Ludhiana, India
Abstract
Purpose – This paper aims to investigate inter firm intellectual capital (IC) disclosures and its
variations in top 20 listed pharmaceutical companies in India, study the category wise and element
wise IC disclosures (ICD), find out the impact of ICD on the creation of IC in monetary terms, find out
correlation between IC valuation and its disclosure, and test significance of correlation.
Design/methodology/approach – This is an exploratory and empirical study of ICD by sample
companies in 2009 using content analysis. IC is valued as market value minus book value. Five-point
scale (0-4), mean disclosure score, range, Chi- squares, Karl Pearson’s correlation and Student’s t-test
are used for analysis and interpretation.
Findings – Although top 20 companies of knowledge-led industry, ICD are low, narrative and
varying significantly among companies. ICD score varies in range of 4 to 36 against expected score of
96. External capital with mean score of 18.78 is the most disclosed category. Brands and business
collaborations is most disclosed element of IC, followed by employee competence and internal
organizational capital respectively. ICD leads to creation of IC in some companies. Markets reflected
true valuations of ICD in seven companies, and high degree of inconsistency in 13 companies. Overall
correlation between IC valuation and disclosure is negative, weak and insignificant.
Practical implications – Sector-specific intangible asset monitors should be formulated to capture
ICD.
Originality/value – The paper measures ICD using five-point scaling technique, it uses Chi- square
test (non-parametric test) to calculate inter-firm variations. The paper also correlates ICD and
valuation of respective companies with Spearman’s correlation for the first time in pharmaceutical
companies in India. It proposes inclusion of fourth category i.e. sector-specific items in existing models
of ICD.
Keywords Intellectualcapital, Disclosure, India, Pharmaceuticals industry, Assetvaluation,
Intangible assets
Paper type Research paper
1. Introduction
“Empires of the future are the empires of the mind”, this excerpt by Sir Winston
Churchill although having a political perspective succinctly summarizes the extreme
relevance of intellect and knowledge. In business organizations as well, the importance
of intellectual capital (IC) has been well proved in extant literature on IC. IC is
recognized as the world’s most important wealth creator (Stuart, 1996), an intangible
asset, knowledge-based equity of firm thought to deliver higher performance
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1469-1930.htm
Voluntary
disclosures of IC
301
Journal of Intellectual Capital
Vol. 12 No. 2, 2011
pp. 301-318
qEmerald Group Publishing Limited
1469-1930
DOI 10.1108/14691931111123430
(Dzinkowski, 2000), true source of sustained competitive advantage for the firm (Hitt
et al., 2001; Bontis and Fitz-enz, 2002; Pablos, 2003, p. 62; Ng, 2006; Swart, 2006), and
asset producing sustained superior organizational performance (Holmes and Gee, 2004,
Sakalaki and Kazi, 2007). IC analytical studies seem to be moving in quite broader
directions, such as looking at the IC component of cities and nations (Edvinsson, 2006),
or focusing on internal and external reporting (Ulrich, 1999; Fitz-Enz 2002; adapted
from O’Donnell et al., 2009). IC is also found to be instrumental in determination of
enterprise value and impacts national economic performance (Petty and Guthrie, 2000).
The enhanced contribution by service sector to the gross domestic product (GDP) of
developed and developing economies of the world reveals the global drift towards
knowledge economy and consequent importance of knowledge-based resources. The
contribution of different sectors to GDP of some of the leading countries is depicted in
Table I.
As indicated by Table I, the share of service sector to the GDP is relatively lesser, so
the growing economies of India and China shall have to exploit full potential of the
service sector to maintain the tempo of targeted growth rate. In order to augment IC of
the nation, the Government of India (GOI) focused on the development of education and
research expansion, inclusion, and rapid improvement in quality throughout the higher
and technical education system, by enhancing public spending, encouraging private
participation and initiating the long overdue major institutional and policy reforms as
the core of the eleventh five year plan (2007-2012). Among the various initiatives in this
direction, the GOI has earmarked enhanced outlays for establishment of world class
universities during eleventh plan so as to enable India to become the global knowledge
hub and set benchmark for Central and other universities (11th five-year plan available
at: http://planningcommission.nic.in/plans/planrel/fiveyr/11th/11v2/11thvol2.pdf).
Given this emphasis on knowledge-/intellect-based economy at macro level, it
becomes relevant to study IC measurements and disclosures at micro levels in
individual firms. Thus, the present study endeavors to discern the voluntary IC
disclosures patterns in the Indian pharmaceutical industry.
2. Meaning and components of IC
IC has been used interchangeably with intangibles, knowledge or knowledge resources
(Oppenheim et al., 2003). Broadly, IC is defined as knowledge transformed to something
of value to an organization (Bontis, 1996), Edvinsson (2006) defines IC of the firm as
“possession of knowledge, applied experience, organizational technology, customer
Agriculture Manufacturing Service
Country (%) (%) (%)
USA 1.2 21.9 76.9
UK 1.2 23.8 75
Australia 3.8 24.9 71.3
China 10.9 48.6 40.5
India 16 25.8 58.2
Source: www.indexmundi.com
Table I.
Sectoral contribution to
GDP in selected countries
JIC
12,2
302
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