Intellectual capital communication: evidence from social and sustainability reporting

Passetti, Emilio and Tenucci, Andrea and Cinquini, Lino and Frey, Marco (2009): Intellectual capital communication: evidence from social and sustainability reporting.

Abstract

The purpose of this study is to investigate the level and quality of intellectual capital information communicated through social and sustainability report for a sample of 37 Italian listed company over two years (2005 and 2006). The study use the resource based theory to explain the relationship between corporate social responsibility and intellectual capital. Content analysis is applied through a multidimensional framework composed by three main disclosure profiles(time orientation, nature and type of information) which permits to analyse in depth the quality of intellectual capital information. The results highlight significant and increasing presence of intellectual capital information in CSR reports which is communicated principally in non financial, quantitative and non time specific terms. Human capital is the most reported category followed by relational and organisational capital. There are many similarities between the two typology of report contributing to the ongoing debate on corporate reporting practices.The results suggest that the integration between IC report and CSR report is a plausible issue and that could be useful to enhance the transparency and the understanding of company processes and activities both for internal and external stakeholders. Very few studies have analysed the intellectual capital in CSR report in atheoretical and mono-dimensional way. Moreover the resource base theory has been scarcely applied to explain the disclosure of intellectual capital even if there are several similarities between the two perspectives.

• Item Type: MPRA Paper
• Language: English
• Keywords: intellectual capital, disclosure, social and sustainability reporting, resource based view, corporate social responsibility
• Subjects: M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing > M41 - Accounting

References

Abhayawansa, S. and Abeysekera, I. (2008), “An explanation of human capital disclosure from the resource-based perspective”, Journal of Human Resource Costing and Accounting, Vol. 12 No. 1, pp. 51-64.

Abeysekera, I. and Guthrie, J. (2005), “An empirical investigation of annual reporting trends of intellectual capital in Sri Lanka”, Critical Perspectives on Accounting, Vol. 16 No. 3, pp. 151-163

Abeysekera, I. (2006), “The project of intellectual capital disclosure: researching the research”, Journal of Intellectual Capital, Vol. 7 No. 1, pp. 61-77.

AICPA (1994), Improving Business Reporting – A Customer Focus: Meeting the Information Needs of Investors and Creditors; Comprehensive Report of the Special Committee on Financial Reporting, American Institute of Certified Public Accountants, New York, NY (The Jenkins Report).

Bansal, B. (2005), “Evolving sustainability: a longitudinal study of corporate sustainable development”, Strategic Management Journal, Vol. 26 No. 3, pp. 197-218.

Barney, J.B. (1991), “Firm resources and sustained competitive advantage”, Journal of Management, Vol. 17 No. 1, pp. 99-120.

Barney, J.B. and Clark, D. (2007), Resource-Based Theory. Creating and sustaining competitive advantage, Oxford University Press, Oxford.

Barnett, M. (2007), “Stakeholder influence capacity and the variability of financial returns to corporate social responsibility”, Academy of Management Reviews, Vol. 32 No. 3, pp. 794-816.

Beattie, V., McInnes, B. and Fearnley, S. (2002), Through the Eyes of Management: A Study of Narrative Disclosures, Institute of Chartered Accountants in England and Wales, London.

Beattie, V., McInnes, B. and Fearnley, S. (2004), “A methodology for analysing and evaluating narratives in annual reports: a comprehensive descriptive profile and metrics for disclosure quality attributes”, Accounting Forum, Vol. 28 No. 3, pp. 205-236.

Beattie, V. and Thomson, S. (2007), “Lifting the lid on the use of content analysis to investigate intellectual capital disclosures”, Accounting Forum, Vol. 31 No. 2, pp. 129-163.

Beretta, S. and Bozzolan, S. (2008), “Quality versus Quantity: the case of forward-looking disclosure”, Journal of Accounting, Auditing and Finance, Vol. 23 No. 3, pp. 333-375. 23

Bhattacharya, C.B. and Sen, S. (2004), “Doing better at doing good: when, why and how consumers respond to corporate social initiative”, California Management Review, Vol. 47 No. 1, pp. 9-25.

Bhimani, A. and Soonawalla, K. (2005), “From conformance to performance. The corporate responsibilities continuum”, Journal of Accounting and Public Police, Vol. 24 No. 3, pp. 165-174.

Bozzolan, S., Favotto, F. and Ricceri, F. (2003), “Italian annual intellectual capital disclosure: an empirical analysis”, Journal of Intellectual Capital, Vol. 4 No. 4, pp. 543-558.

Brammer, S., Millington, A. and Rayton, B. (2007), “The contribution of corporate social responsibility to organisational commitment”, The International Journal of Human Resource Management, Vol. 18, No. 10, pp. 1701-1718.

Brennan, N. (2001), “Reporting intellectual capital in annual reports: evidence from Ireland”, Accounting, Auditing and Accountability Journal, Vol. 14 No. 4, pp. 423-436.

Bukh, P. (2003), “The relevance of intellectual capital disclosure: a paradox?”, Accounting, Auditing and Accountability Journal, Vol. 16 No. 1, pp. 49-56.

Bukh, P.N., Nielsen, C., Gormsen, P. and Mouritsen, J. (2005), “Disclosure of information on intellectual capital in Danish IPO prospectuses”, Accounting, Auditing & Accountability Journal, Vol. 18, No. 6, pp. 713-732.

Branco-Castelo, M. and Rodriguez-Lima, L. (2006), “Corporate social responsibility and resource-based perspectives”, Journal of Business Ethics, Vol. 69 No. 2, pp. 111-132

Castaldo, S. (2008), Trust in market relationship, Edward Elgar Publishing, Cheltenham, UK

Castillo-Polo, F. and Gallardo-Vázquez D. (2008), “Social information within intellectual capital report”, Journal of International Management, Vol. 14 No. 4, pp. 353-363.

Cerbioni, F. and Parbonetti, A. (2007), “Exploring the Effects of Corporate Governance on Intellectual Capital Disclosure: An Analysis of European Biotechnology Companies”, European Accounting Review, Vol. 16 No. 4, pp. 791-826.

Colbert, B. A. (2004), “The complex resource-based view: Implications for theory and practice in strategic human resource management”, Academy of Management Review, Vol. 28, No. 3, pp. 341-358.

Cordazzo, M. (2005), “IC statement vs. environmental and social reports: An empirical analysis of their convergences in the Italian context”, Journal of Intellec tual Capital, Vol. 6 No. 3, pp. 441-464.

Cuganesan, S. (2006), “Reporting organisational performance in managing human resource. Intellectual capital or stakeholder perspectives?”, Journal of Human Resource Costing and Accounting, Vol. 10No. 3, pp. 164-188.

Dawkins, C.E and Fraas J.W. (forthcoming), An exploratory analysis of corporate social responsibility and disclosure, Business & Society, (2008), doi: 10.1177/0007650308324047.

Del Bello, A. (2006), “Intangibles and sustainability in local government reports: an analysis into an uneasy relationship”, Journal of Intellectual Capital, Vol. 7 No. 4, pp. 440–456.

Déniz de la Cruz, M. and Pérez De Saá, P. (2003), “A resource-based view of corporate responsiveness toward employees”, Organization Studies, Vol. 24 No. 2, pp. 299-319.

Dyer, J. H. and Singh, H. (1998), “The relational view: Cooperative strategy and sources of interorganizational competitive advantage”, Academy of Management Review, Vol. 23 No. 4, pp.660–679.

Frey, M., Melis, M. Vagnoni, E. (2008), “Recent developments in social and environmental reporting among Italian Universities: a critical evaluation of leading edge practices”, paper presented at the 2nd Italian Conference on Social and Environmental Accounting Research, (CSEAR), 17-19 September, Rimini.

Fuentes-García, F.J., Nủńez-Tabales, J.M. and Veroz-Herradón R.V. (2008), “Applicability of corporate social responsibility to human resources management: perspective from Spain”, Journal of Business Ethics, Vol. 82 No. 1, pp. 27-44.

Galli, L. and Baldon, M.G. (2005), Sbilanciati. I bilanci sociali delle imprese visti dai consumatori. Associazione Difesa Consumatori e Ambiente, Roma.

Garcìa-Ayuso, M. (2003), “Factors explaining the inefficient valuation of intangibles”, Accounting, Auditing & Accountability Journal, Vol. 16 No. 1, pp.57-69. 24

Gjølberg, M. (2009), “Measuring the immeasurable?: Constructing an index of CSR practices and CSR performance in 20 countries”, Scandinavian Journal of Management, Vol. 25 No. 1, pp. 10-22.

Gray, R. (2006a), “Does sustainability reporting improve corporate behaviour? Wrong question? Right time?”, Accounting and Business Research, Vol. 36 Special Issue, pp. 65-88.

Gray, R. (2006b), “Social, environmental and sustainability reporting and organisational value creation? Whose value? Whose creation?”, Accounting, Auditing and Accountability Journal, Vol. 19 No. 6, pp. 793-819.

Gray, R. H., Kouchy, R. and Lavers, S. (1995), “Constructing a research database of social and environmental reporting by UK companies: a methodological note”, Accounting, Auditing and Accountability Journal, Vol. 8 No. 2, pp. 78-101.

Greening, D.W. and Turban, D.B. (2000), “Corporate social performance as a competitive advantage in attracting a quality workforce”, Business & Society, Vol. 39 No. 3, pp. 254-280.

Guthrie, J. and Parker L. (1989), “Corporate social responsibility: a rebuttal of legitimacy theory”, Accounting and Business Research, Vol. 19 No. 76, pp. 241 - 251.

Guthrie, J. and Petty R. (2000), “Intellectual capital: Australian annual reporting practices”, Journal of Intellectual Capital, Vol. 1 No. 3, pp. 241 - 251.

Guthrie, J., Petty, R., Yongvanich K. and Ricceri, F. (2004), “Using content analysis as a research method to inquire into intellectual capital reporting”, Journal of Intellectual Capital, Vol. 5 No. 2, pp. 282- 293.

Guthrie, J., Petty R. and Ricceri, F. (2006), “The voluntary reporting of intellectual capital: Comparing evidence from Hong Kong and Australia”, Journal of Intellectual Capital, Vol. 7, No. 2, Vol. 254- 271.

Guthrie, J., Petty, R. and Ricceri, F. (2007), Intellectual Capital Reporting: Lessons from Honk Kong and Australia, The Institute of Chartered Accountants of Scotland, Edinburgh.

Hall, R.(1993), “A framework linking intangible resources and capabilities to sustainable competitive advantage”, Strategic Management Journal, Vol. 14, No. 8, pp. 607-618.

Hammond, K. and Miles, S. (2004), “Assessing quality assessment of corporate social reporting: UK perspective”, Accounting Forum, Vol. 28 No. 1, pp. 61-79.

Hyon Ju Kanf, H. (2006), Reporting intangible assets: voluntary disclosure practices of the top emerging market companies, unpublished PhD Thesis, The University of New South Wales, Sidney.

Hillman, A. and Keim, G.D. (2001), “Shareholder value, stakeholder management, and social issues: what’s the bottom line? Strategic Management Journal, Vol. 22 No. 2, pp. 125-139.

Holland, J. and Johanson, U. (2003), “Value relevant information on corporate intangibles. Creation, use and barriers in capital market”, Journal of Intellectual Capital, Vol. 4 No. 2, pp. 465-486.

Hooks, J., Coy, D. and Howard, D. (2002), “The information gap in annual reports”, Accounting, Auditing & Accountability Journal, Vol. 15 No. 4, pp. 501-22.

Jamali, D., Safieddine A.M. and Rabbath, M. (2008), “Corporate governance and corporate social responsibility: synergies and interrelationship”, Corporate Governance: An International Review, Vol. 16 No. 5, pp. 443-459.

Johanson, U. (2003), “Why are capital market actors ambivalent to information about certain indicators on intellectual capital?”, Accounting, Auditing and Accountability Journal, Vol. 16 No. 1, pp. 31-38.

Kinnie, N. J., Swart, J. and Purcell, J. (2005), “Influences on the choice of HR system: the network organization perspective”, International Journal of Human Resource Management, Vol. 16 No. 6, pp.1004-1028.

Krippendorff, K. (2004), Content Analysis: An Introduction to Its Methodology, 2nd edition, Sage Publications, Thousand Oaks.

KPMG, (2005), International Survey of Corporate Responsibility Reporting, Amsterdam.

KMPG, (2008), International Survey of Corporate Responsibility Reporting, Amsterdam.

Lev, B. and Zambon, S. (2003), “Intangibles and intellectual capital: an introduction to a special issue”, European Accounting Review, Vol. 12 No. 4, pp. 597-603.

Li, J., Pike, R. and Haniffa, R. (2008), “Intellectual capital disclosure and corporate governance structure in UK firms”, Accounting and Business Research, Vol. 38, No. 2, pp. 137-159.

Linsley, P. M. and Shrives, P.J. (2006), “Risk reporting: A study of risk disclosures in the annual reports of UK companies, The British Accounting Review, Vol. 38 No. 4, pp. 307-404.

McWilliams, A., Siegal, D.S. and Wright, P.M. (2006), “Corporate social responsibility: strategic implications, Journal of Management Studies, Vol. 43 No. 1, pp. 1-18.

Miles, M. P., Munilla, L.S. and Darroch J. (2006), “The role of strategic conversations with stakeholders in the formation of corporate social responsibility strategy”, Journal of Business Ethics, Vol. 69 No. 2, pp. 195-205.

Milne, M. and Adler R. W. (1999), “Exploring the reliability of social and environmental disclosures content analysis”, Accounting, Auditing and Accountability Journal, Vol. 12 No. 2, pp.237-256.

Mont, O. and Leire, C. (2008), “Socially responsible purchasing in supply chain: the present state in Sweden and lessons from the future”, working paper, International Institute for Industrial Environmental Economics, University of Lund, Lund.

Mouritsen, J. (2003), “Intellectual capital and the capital market: the circulability of intellectual capital”, Accounting, Auditing and Accountability Journal, Vol. 16 No. 1, pp. 18-30.

Mouritsen, J., Larsen, H. T. and Bukh, P. N. D. (2001), 'Intellectual Capital and the 'Capable Firm': Narrating, Visualising and Numbering for Managing Knowledge', Accounting, Organisation and Society, Vol. 26 No. 7-8, pp. 735-762.

Nielsen, C. and Madsen, M.T. (forthcoming), “Discourses of transparency in the intellectual capital reporting debate: Moving from generic reporting models to management defined information”, Critical Perspective on Accounting, (2008), doi: 10.1016/j.cpa.2008.09.007.

Oliveira, L., Rodrigues, L. and Russell, C. (2006), “Firm-specific determinants of intangibles reporting: evidence from the Portuguese stock market”, Journal of Human Resource Costing and Accounting, Vol. 10 No. 1, pp. 11-33.

Orens, R. and Lybaert N. (2007), “Does the financial analysts' usage of non financial information influence the analysts' forecast accuracy? Some evidence from the Belgian sell-side financial analyst”, International Journal of Accounting, Vol. 42 No.3, pp. 237-271.

Orlitzky, M., Schmidt F. L. and Rynes, S. L. (2003), “Corporate social and financial performance: A Meta analysis”, Organization Studies, Vol. 24 No. 3, pp. 403–441.

Parker, L. D. (2007), 'Financial and external reporting research: The broadening corporate governance challenge', Accounting and Business Research, Vo. 37 No. 1, pp. 39-54.

Pedrini, M. (2007), “Human capital convergences in intellectual capital and sustainability reports”, Journal of Intellectual Capital, Vol. 8 No. 2, pp.346-366.

Perrini, F. (2006), “The practitioner’s perspective on non-financial reporting”, California Management Review, Vol. 48 No. 2, pp. 73-103.

Perrini, F., Russo, A. and Tencati, A. (2007), “CSR Strategies of SMEs and Large Firms. Evidence from Italy”, Journal of Business Ethics, Vol. 74 No. 3, pp. 285-300.

Post, J.E., Preston, L.E. and Sach, S. (2002), "Managing the extended enterprise: the new stakeholder view", California Management Review, Vol. 45 No. 1, pp. 6-28.

Reed, K.K., Lubatkin, M. and Srivivasan, N. (2006), “Proposing and testing an intellectual capital-based view of the firm”, Journal of Management, Vol. 43 No. 4, pp. 867-893.

Renneboog, L., Ter Horst, J. and Zhang, C. (2008), “Socially responsible investments: Institutional aspects, performance, and investor behavior”, Journal of Banking and Finance, Vol. 32 No. 9, pp. 1723-1742.

Robb S.W.G., Single L.E. and Zarzeski M.T. (2001), “Nonfinancial disclosures across Anglo-American countries”, Journal of International Accounting, Auditing and Taxation, Vol. 10 No. 1, pp. 71–83.

Roslender, R., Stevenson, J. and Kahn H. (2006), “Employee wellness as intellectual capital: an accounting perspective”, Journal of Human Resource Costing and Accounting, Vol. 10 No. 1, pp.48-64.

Russo, A. and Tencati, A. (2009), “Formal vs. Informal CSR Strategies: Evidence from Italian Micro, Small, Medium-sized and Large Firms”, Journal of Business Ethics, Vol. 85 supplement No. 2, pp.339-353.

Scott, J.T. (2005), “Corporate social responsibility and environmental research and development”, Structural Change and Economic Dynamics, Vol. 16 No. 3, pp. 313-331.

Secchi, D. (2007), “Utilitarian, managerial and relational theories of corporate social responsibility”, International Journal of Management Reviews, Vol. 9 No.4, pp.347-373.

Sen, S., Bhattacharya, S. and Korschun, D. (2006), “The role of corporate social responsibility in strengthening multiple stakeholder relationship: a field experiment”, Journal of Academy of Marketing Science, Vol. 34 No. 2, pp. 158-166.

Sirsly, C.A. and Lamertz, K. (2007), “When does a corporate social responsibility initiative provide a first-mover advantage”, Business & Society, Vol. 47 No. 3, pp. 343-369.

Sonnier, B.M., Carson, K.D. and Carson, P.P. (2008), “Intellectual capital disclosure by traditional US companies: a longitudinal assessment”, Journal of Accounting and Organisational Change, Vol. 4 No.1, pp. 67-80

Stanton, P. and Stanton, J. (2002), “Corporate annual report: research perspective used”, Accounting, Auditing and Accountability Journal, Vol. 15 No.4, pp.478-500.

Steenkamp, N. (2007), “Intellectual capital reporting in New Zealand: refining content analysis as a research method”, unpublished PhD Thesis, Auckland University of Technology, Auckland.

Singh, I., Van der Zahn, J. L. W. M. (2008), “Determinants of intellectual capital disclosure in prospectuses of initial public offerings”, Accounting and Business Research, Vol. 38 No. 5, pp. 409-431.

Striukova, L., Unerman, J. and Guthrie, J. (2008), “Corporate reporting of intellectual capital: Evidence from UK companies”, British Accounting Review, Vol. 40 No. 4, pp. 297-313.

Sujan, A. and Abeysekera, I. (2007), “Intellectual capital reporting practices of the top Australian firms”, Australian Accounting Review, Vol. 17 No. 2, pp. 71-83.

Sveiby, K.E. (1987), The New Organisational Wealth: Managing and Measuring Knowledge Based Assets., Berrett-Koehler Publisher, San Francisco.

Tencati, A., Perrini, F. and Pogutz, S. (2004), “New tools to foster corporate socially responsible behaviour”, Journal of Business Ethics, Vol. 53 No. 1-2, pp. 173-190.

Tencati, A. (2006), “Corporate social responsibility in Italy: state of art”, Journal of Business Strategies, Vol. 23 No.1, pp. 1-44.

Toms, J.S. (2002), “Firm resource, quality signals and the determinations of corporate environmental reputation: some UK evidence”, British Accounting Review, Vol. 34 No. 3, pp. 257-282.

Unerman, J. (2000), “Methodological issues - Reflections on quantification in corporate social reporting content analysis”, Accounting, Auditing and Accountability Journal, Vol. 13 No. 5, pp. 667-681.

Unerman, J., Guthrie, J. and Striukova, L. (2007), “UK reporting of intellectual capital”. Institute of Chartered Accountants in England and Wales, London.

Vandemaele, S.N., Vergauwen, P.G. and Smits, A.J. (2005), “Intellectual capital disclosure in The Netherlands, Sweden and the UK: A longitudinal and comparative study”, Journal of Intellectual Capital, Vol. 6 No. 3, pp. 417-426.

Villalonga B. (2004), “Intangible resources, Tobin’s q, and sustainability of performance differences”, Journal of Economic Behavior and Organization, Vol. 54 No. 2, pp. 205–230.

Vergauwen, P. G. and van Alem, F.J. (2005), “Annual report IC disclosures in The Netherlands, France and Germany”, Journal of Intellectual Capital, Vol. 6, No.1, pp. 89-104.

Weber, R. (1985), “Basic content analysis, quantitative applications in the social sciences”, Sage Publications, Beverly Hills.

Williams, C.C. (2008), “Toward a taxonomy of corporate reporting strategies, Journal of Business Communication, Vol. 45, No.3, pp. 232-264.

Williams, M. S. (2001), “Is intellectual capital performance and disclosure practices related?”, Journal of Intellectual Capital, Vol. 2 No.3, pp. 192-203.

Wright., P. M. Dunford, B.B. and Snell, S.A. (2001), “Human resource and the resource based view of the firm”, Journal of Management, Vol. 27 No. 6, pp. 701-721.

Youndt., M.A. Subramaniam, M. and Snell, S.A., 2004. Intellectual Capital Profiles: An Examination of Investments and Returns, Journal of Management Studies, Vol. 41 No. 2, pp. 335-361.