A longitudinal and cross-sectional examination of intellectual capital information disclosure in six large FTSE 100 UK companies, 1974-2008

PhD ThesisThis study developed a multidimensional content analysis instrument for the cross sectional and longitudinal analysis of intellectual capital disclosures in the annual reports of six UK FTSE 100 companies over a period of 35 years (1974-2008 inclusive). Motivated by empirical deficits in intellectual capital disclosure studies over a lengthy longitudinal period and also in content analysis instruments capable of resolving the qualitative characteristics of intellectual capital disclosures, this study disaggregated content into three main categories and twenty six sub-categories. Recording took place at the level of the theme or clause, and data was captured using a volumetric measure (frequency of themes) and also using three interrogations for qualitative characteristics: the extent to which disclosures contained qualitative and quantitative content, the time orientation of disclosure and the division between fact and perception in reporting. Representing the most detailed and complex analysis of ICR in UK companies so far, this study is also distinguished by having, by some distance, the longest longitudinal period of any IC study. The complexity of the content analysis instrument, unique to this study, enabled a number of original findings, deriving from the large sample size and unique content analysis instrument, to be offered. Intellectual capital disclosure, as measured by the frequency of clauses, increased over the period of the study. Within this overall trend, relational capital was observed to be the highest frequency category of IC, when compared to human capital and structural capital. The rates of category growth varied by company, with the differentials between relational capital and other categories also varying by sector. Qualitative characteristics also showed longitudinal and cross-sectional effects. This study also found an appropriateness of the existing theories in explaining the study findings with no single theory explaining more than a small part of the observed reporting behaviour.Universiti Kebangsaan, Malaysia

Sectoral effects of intellectual capital on Malaysian SME business performance / Salwa Muda and Mara Ridhuan Che Abdul Rahman.

This paper seeks to estimate and analyze the influence of intellectual capital elements on firm performance on Malaysian SMEs of two sectors, service and manufacturing. The research framework proposes relationships between intellectual capital elements; human capital, structural capital and relational capital and performance. Studies on examining the effects of intellectual capital on performance are growing, however, little is known about how the effects of intellectual capital on SMEs performance differs in different sectors. Questionnaires were delivered to managers and CEOs of SMEs as key informants of the firms to gather the data. A total of 153 usable data from both sectors were analyzed using the PLS-SEM technique through the measurement model, structural model and multigroup analysis (MGA). For the direct relationship, only the effects of human capital (HC) and relational capital on performance show significant results for the full and service sample. Meanwhile, human capital (HC) and structural capital (SC) were found to have significant effects on the manufacturing sector. The multi-group analysis further indicates that the relationship between relational capital and performance differs significantly and was stronger for the service sector

Relationship between unionized companies, government ownership and reporting human capital information in corporate annual reports

Investors, employees, and societies are interested in human capital information. This information will assist investors to assess the effectiveness of human capital management to deliberate their investment capital allocation. The employees will also know the extent of their development and value in organizations. Despite the significant role of human capital in the success and survival of an organization, human capital information disclosure is still limited in annual reports. Thus, investors or other stakeholders have scarce information to distinguish between organizations that develop human capital and those that constrain human capital. The factors that explain the disclosure is still unknown. In light of stakeholder’s theory, this study investigated the relationship between highly unionized companies and government-owned companies, which are factors that can pressure companies to disclose human capital information in annual reports. Companies from the banking and financial institution industries were selected as highly unionized companies, whereas companies from the real property industry were selected as poorly unionized companies based on the Malaysian Trade Union Congress (MTUC) dataset. Government ownership was also identified in these sample companies. A total of 192 annual reports gathered from 48 companies for the financial year from 2010 to 2014 were analyzed in terms of content. Control variables, such as age, size, profit, and leverage, were also associated in the relationship. This study determined that highly unionized companies (banks) and government ownership demonstrate significantly positive relationship with human capital information reporting in annual reports. For control variables, only the size of companies shows positive relationship with the disclosure. Therefore, the presence of stakeholders in companies (i.e., union membership and government) is considered a good predictor for reporting human capital information in annual reports

Occupational health and safety reports : a comparative study between Malaysia and the United Kingdom

Occupational health and safety reporting (OHS) is important for the evaluation of business risk as well as representing the commitment of the reporting companies to their stakeholders which in turn enhance companies’ images. The evidences of OHS reporting practices can be found in prior studies that exist in the literature of corporate social reporting, intellectual capital reporting and risk reporting. However not much can be understood from prior studies as the extent to which OHS index reporting captured was somewhat limited. Therefore, an exclusive OHS reporting study that apply more comprehensive index of reporting would ensure the far-reaching of its understanding. This index was applied in content analysis of corporate annual reports for financial year ended 2014. The objective of the study is to compare the practices of OHS reporting by 40 Malaysia companies against 40 companies from so-called reporting leading country such as the United Kingdom (UK). The findings are expected to be indicative of current practices of such reporting as well as to propose the area of improvement. In the absence of reporting guidelines, the study’s findings suggest that the OHS reporting practice in Malaysia is comparable to the UK. In some reporting items, Malaysia companies report even more than the UK companies. However, Malaysia companies are suggested to increase financial-based OHS reporting as they are behind their counterparts in the UK. This study is consistent with Stakeholder Theory where reporting companies not only perform OHS work as a mean to discharge its accountability but they also use annual reports as a method of accountability information conveyance

Intellectual capital efficiency and firm performance in Malaysia: the effect of government ownership

In the era of digital information, intellectual capital becomes more important to firms because the economic environment throughout the world continuously focused on the existence of knowledge capital in the firms to ensure firms’ survival. However, the existence of firms’ investment in intellectual capital is not clear because it is reported as an expense rather than asset. This situation makes the efficiency of intellectual capital investments vague which can jeopardize firms’performance and value. However this weakness could be overcome with a reliable governance in the firms. The objective of this study is to investigate the moderating effect of government ownership (a characteristic of corporate governance) in the association between the efficiency of intellectual capital and firm performance. Government ownership has always been seen by investors as controversial especially when the government seems to always taking advantage of firms’ wealth. This study utilised a sample of 1,048 firm-years data from financial statements of firms listed on the main market of Bursa Malaysia for years 2012 through 2014. Findings shows a positive association between intellectual capital efficiency and firm performance. However the existence of government ownership weakens the association. Findings support the grabbing hand theory which argues that government ownership is seen as negative by stakeholders due to only taking advantage and not enhancing the existence of intellectual capital in firms. Findings show that investors still need to be alert if they want to invest in firms owned by the government in Malaysia. Nevertheless, the findings could also assist the government as owners to listed firms to improve their reputation in order to be seen as the entity that would help elevate firms’ performance which could eventually assist to heighten the capital market and economy of Malaysia

Non-financial human capital disclosure and share price

The aim of this study is to examine the relationship between disclosure of non-financial human capital information (HCD) and share price of the top 100 companies listed on Bursa Malaysia from financial years 2010 to 2013. Human capital (HC) is considered a valuable asset in a knowledge-based economy. The knowledge and skills possessed by individuals are regarded as a key source of competitive advantage and value creator to companies. Prior research acknowledges the importance of HC information to investors, who may have to rely on disclosures in annual reports when evaluating a company’s future direction, potential, value and prospects. However, companies only disclose limited information on this ‘asset’. In this study, HCD is viewed from the perspective of signalling and efficient capital market theories. Following previous studies, we incorporate HC information and its two components, namely, HC information related to directors and employees, into the Ohlson model. Our study reveals an increasing trend of HCD, and the disclosure is value relevant. Further analysis of the HC information component reveals that both HC information (HC related to directors and employees) are value relevant. These findings are in line with the argument that Malaysian financial analysts and fund managers regard information related to the company’s management and key corporate decision makers as important in investment decision making. The findings of this study are relevant to accounting standard setters in determining the types of HC that should be disclosed in the annual reports because this information can create value for companies. Managers should also pay attention to HC information because such information is value relevant to stakeholders

Environmental performance : does corporate governance matter?

Corporate environmental management and performance have become increasingly significant for companies in recent years, as they should operate in line with societal values and norms. Top management of companies, which include their board members, have an important role to play to address environmental issues, which include compliance with environmental laws and regulations. However, despite the growing number of environmental problems, stakeholder pressures and media attentions, there are relatively few studies that consider the role of corporate governance mechanisms in influencing the corporate environmental performance. This study investigates this phenomenon built upon the stakeholder theory. The study employs a matched pairs’ design method to select sample of this study; compliant and non-compliant groups of companies listed on Bursa Malaysia for the year of 2013. Data for environmental performance (EP) information were obtained from the Malaysia Department of the Environment (DOE). Data for corporate governance were collected from annual reports of sample companies to form corporate governance index. Results show that corporate governance mechanism is positively associated with the environmental performance of companies in Malaysia. Results suggest that the existence of good corporate governance would lead to higher companies’ compliance with environmental regulations that positively affects environmental performance. Additional analysis, which uses an alternative measurement for corporate governance and environmental performance measures, also confirm this finding. The results of this study highlight the importance of corporate governance mechanism in the formulation of strategic direction and operational implementation especially in the area of environmental management to meet regulatory standards and stakeholders’ expectation

Effects of dividend tax reform on dividend behavior : a clientele theory approach

Clientele theory claims that investors have their own systematic preference to plan their dividend portfolios based on tax and transaction cost incurred. Due to that, companies need to decide on their dividend payout policy that can attract investors to invest in their company especially when dividend tax laws change from full imputation system to single tier tax system (STT). STT is expected to enhance the simplicity and efficiency of the tax administration process with the intention of encouraging companies to pay dividend. Therefore, this paper attempts to examine company dividend payouts by focusing on two observations periods; during transitional period of STT and after the compulsory effects of STT. This study has selected 141 public listed companies from two of the biggest industries in Malaysia and produced 4,508 observations for the period of 2002 until 2015. This study has used t-test of significant difference to test the changes on dividend payouts by splitting the data into full sample and among the payers only. Initially, during the transitional period, results were consistent with clientele theory when it was found that both regular and special dividend had significantly increased during transitional period. In addition, this study also found that companies with the best performance in terms of return on equity had significantly increased their regular dividend, while moderate companies has significantly increased special dividend during transitional period. But the results were insignificant among poor performance companies. In contrast, the results suggested that there is no significant difference of dividend payouts once the compulsory effects of STT took place

Accounting education: Filling competencies gap

Globalisation has changed the competitive and technological environments in which businesses operate. This in turn has resulted in new expectations of accounting profession. Accordingly, accounting education must change to meet the needs of the profession. In the USA and UK, there is a widespread belief that the current accounting program is inadequate to meet the present and expected needs of the profession. Accounting educators have always been reproved for creating competencies gap, which means that what is important in the workplace, is not being emphasized in the universities. In the Malaysian context, our accounting degree curriculum has already been integrated by other disciplines in order to fulfill the need of current state in accounting profession, but do the local higher institutions still suffer the similar problems and be blamed on the same ground accordingly? This research aims to identify the competency gap probably created by local universities and it will be a basis for reviewing accounting education. In this study, 1,300 questionnaires were sent to accounting graduates from local public universities such as Universiti Malaya, Universiti Kebangsaan Malaysia, International Islamic University, Universiti Utara Malaysia, Universiti Sains Malaysia, Universiti Teknologi Mara, and Universiti Putra Malaysia who are members of Malaysian Institute of Accountants. There were 243 returned questionnaires. Gap analysis found 2 categories of gaps; 1) large gap and 2) small gap. Large gap suggest that the most important competencies in the workplace but less emphasized at their universities are broad competencies such as communication skills, decision-making skills, leadership etc. The small gap suggest that the competencies which almost fulfill the workplace requirement are core competencies such as skill in financial accounting, management accounting, auditing, accounting system & control and taxation. In restructuring the accounting education, this study suggests that more revision and expansion should be placed on broad competencies such as existing marketing, communication, decision-making and leadership courses in the local universities. Finally, co-operation between universities and practitioners is important in bridging the gap

Post-COVID-19 organizational resilience in the manufacturing and service industries

COVID-19 has shaken the business industry and forced a revisit of the resilience literature. Though organizations’ management have adopted measures prescribed by the literature, these measures have been unable to provide a fitfor-all solution. This has motivated this study to re-examine the organizational resilience factors driving operational performance in the post-pandemic era, specifically in consideration of the role of firm industry orientation and firm size. Thus, the preset study aims it to identify to what extent the organizational resilience (ability, adaptability, agility and flexibility) effects the operational performance; and, to determine how the firm size influence the relationship between organizational resilience and the operational performance of the manufacturing and service sectors. Data was collected from 85 organizations in the Malaysian manufacturing and services industries and analyzed using PLS-SEM. The results show that the agility and flexibility dimensions of resilience have a significant positive effect on operational performance, while the ability and adaptability dimensions have no such effect. Additionally, firm size was found to be insignificant in the relationship between organizational resilience and operational performance. The findings reveal that resilience is vital for the sustainability of an organization in this turbulent and complex business climate. Therefore, managers should thus consider incorporating appropriate resilience strategies in both opportunities and operations to embrace different strategies to leverage organizational resilience post COVID. Ultimately, the government should utilize these findings for policymaking when leading post-COVID-19 projects and initiatives