Structural changes in the knowledge economy have greatly affected the way business
is conducted and the processes firms create value. The financial reporting system is
inadequate as a result of such changes, and disclosure of intellectual capital (IC)
information has gained importance for communicating with capital markets. Empirical
research documents corporate governance (CG) factors influencing IC disclosure
practices, as well as demonstrates the value-relevance and predictive power of IC
information.
The disclosure of IC information by listed firms is a topic that has attracted
considerable attention from contemporary researchers, but scant empirical evidence
exists. Much of the researchers has examined CG as a key determinant of IC (and
nonfinancial) disclosure; in contrast, few provides evidence for explaining their
controversial findings of board independence on disclosure. In addition, a lack of
studies confirms the literature about the use of IC information by capital market
participants. Therefore, this thesis aims to examine disclosure of IC information in
relation to outside directors, auditors, and sell-side analysts respectively.
The specific objectives of this thesis are to examine whether outside directors’
expertise is a determinant of IC disclosure; and the extent to which the disclosure of
IC information impacts on audit effort and analysts’ forecasts. In order to address these research objectives, a content analysis of IC disclosure (a self-constructed index of 64
coded items) in strategic reports released by FTST 350 companies is used. The
content analysis captures and measures IC disclosure by category (i.e., human,
structural & relational capital), notion (i.e., static vs. dynamic), and connection (i.e.,
across categories vs. with strategies). Using multivariate regression models that were
primarily developed upon information asymmetry arguments and agency theory, the
specific objectives of this thesis are addressed in three empirical chapters.
The findings in Chapter 3 showed that proportion of outside directors (NEDs) with
cross-directorship, nonaccounting and academia expertise has a positive association
with IC disclosures, whereas board independence itself has no effect on the
disclosures. The findings indicates that the monitoring role of NEDs alone is
inadequate in promoting IC disclosure. Rather, it supports the importance of the dual
role (i.e., monitor and advisory) of a supervisory board. The results also respond to
the UK CG Code in their recommendation that the combination of skills, experience
and knowledge guarantees a sound information environment to the market.
Nonetheless, findings raised a further concern about the quantity of IC disclosures
when companies have more NEDs with accounting expertise.
On whether and how disclosure of IC information impacts on audit effort, Chapter 4
found that firms with high levels of IC disclosure in the previous year pay more audit
fees (proxied for audit effort) in the current year regardless of their earnings quality
conditions. It was also found that firms greatly disclosing dynamic IC information are
charged more than those of focusing on static IC disclosure. In addition, findings in
Chapter 5 revealed that there is a negative relation between IC disclosure and analyst
forecast errors, indicating that UK sell-side analysts appreciate the disclosure of IC
information and thus confirming that IC information has predictive ability of explaining a firm’s future value. It was further identified that disclosed IC information absorbs the
negative effect of concentrated executive ownership and opaque financial
environment.
Overall, the results of this thesis suggest that IC reporting process could be improved
by having sufficient outside directors with certain types of expertise on the board. In
doing so, improved IC disclosure helps to reduce information asymmetry (proxied by
analyst forecast accuracy) between firms and outside investors, albeit firms bear a
significant increase in audit fees. This study calls for guidelines for IC disclosure in the
UK and the support of assurance services to enhance credibility of firm-provided IC
information in a bid to promote the communication of IC information with the capital
market.
| Identifer | oai:union.ndltd.org:BRADFORD/oai:bradscholars.brad.ac.uk:10454/19523 |
| Date | January 2021 |
| Creators | Hong, Juan |
| Contributors | Li, Jing, Wu, Steven, Akbar, Saeed |
| Publisher | University of Bradford, School of Management. Faculty of Management, Law and Social Sciences |
| Source Sets | Bradford Scholars |
| Language | English |
| Detected Language | English |
| Type | Thesis, doctoral, PhD |
| Rights | <a rel="license" href="http://creativecommons.org/licenses/by-nc-nd/3.0/"><img alt="Creative Commons License" style="border-width:0" src="http://i.creativecommons.org/l/by-nc-nd/3.0/88x31.png" /></a><br />The University of Bradford theses are licenced under a <a rel="license" href="http://creativecommons.org/licenses/by-nc-nd/3.0/">Creative Commons Licence</a>. |
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