Che Abdul Rahman 13

343 Pages·2013·2.07 MB·English

A LONGITUDINAL AND CROSS-SECTIONAL
EXAMINATION OF INTELLECTUAL CAPITAL
INFORMATION DISCLOSURE IN SIX LARGE
FTSE 100 UK COMPANIES, 1974-2008

MARA RIDHUAN CHE ABDUL RAHMAN

DOCTOR OF PHILOSOPHY

NEWCASTLE UNIVERSITY BUSINESS SCHOOL
NEWCASTLE UNIVERSITY

APRIL 2013
Attestation of Authorship

I hereby declare that this submission is my own work and, that to the best of my
knowledge and belief, it contains no material previously published or written by another
person (except where explicitly defined in the acknowledgement), nor material which to
a substantial extent has been submitted for the award of any other degree or diploma of
a university or other institution of higher learning.

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Abstract

This 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.

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Acknowledgement

Praise be to Allah, most compassionate and most merciful, for endowing me with good
health and perseverance to endure the tough process of searching wisdom.
I wish to express my deepest gratitude to the people and organisation that have
contributed, directly and indirectly, to the completion of this thesis. Firstly, I would like
to acknowledge my sponsor and employer, Universiti Kebangsaan Malaysia for
opportunity and scholarship to pursue my doctoral studies. To my supervisor, Professor
David Campbell, I wish to sincerely thank him for guidance and encouragement that has
enabled me to successfully conduct the research and complete this thesis. His
continuous intellectual efforts from generating research ideas in our first meeting until
completing this thesis have been tremendously helpful. Also to my second supervisor,
Dr Jane Gibbon, your advices and insights were very helpful too. To my beloved mum,
Hasmah Hj Seman, wonderful wife, Nasriah Abdul Rahman and children, Sufi, Syabeel
and Damia, I thank them for their support and understanding throughout the journey,
they all always beside me, giving me inspirations and bundles of joy. To my late father,
Che Abdul Rahman Wanik, I miss you so much.
To all my friends in Newcastle who have in no small measure offered their kindness,
understanding and friendship, I wish to express my heartfelt appreciation. Living in
Newcastle was the best memory in my life.

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TABLE OF CONTENTS
Attestation of authorship i
Abstract ii
Acknowledgement iii
List of tables x
List of figures xii
Abbreviations xiv
Accompany material xv

Chapter 1 Introduction
1.1 Overview 1

1.2 Definition of the problems 4

1.2.1 Longitudinal focus 4
1.2.2 Developing and enhancing a method for capturing qualitative
characteristics of IC information 5
1.2.3 Analysis of the effect of sectoral membership on IC disclosure 6
1.2.4 IC disclosure evidence in United Kingdom-based companies 7
1.2.5 Theories underlying IC disclosure 7

1.3 Objectives of the study 8

1.3.1 To investigate IC disclosure practice in annual reports on a cross-
sectional and longitudinal basis 8
1.3.2 To develop and enhance a method of capturing volume and the
qualitative characteristics of IC disclosure 8

1.4 Research questions 8

1.5 Research design 9

1.6 Thesis outline 11

1.7 Chapter summary 12

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Chapter 2 Background to the study: the knowledge economy and
intellectual capital disclosure

2.1 Introduction 13

2.2 Concepts of the knowledge economy and its characteristics 14

2.3 The Knowledge economy in the UK 17

2.4 The knowledge economy and its challenges to traditional 18
financial disclosure

2.5 Effects of irrelevance of traditional financial disclosure 21

2.6 The need for a new disclosure system 22

2.7 Chapter summary 23

Chapter 3 Literature review: intellectual capital disclosure

3.1 Introduction 24

3.2 Understanding the concept of intellectual capital 24

3.2.1 Definitions of intellectual capital 24
3.2.2 Categories of intellectual capital 28

3.3 Intellectual capital information disclosure 32

3.4 The history of intellectual capital disclosure studies 33

3.5 Accounting standards for intangible assets and intellectual 38
capital disclosure

3.6 The rationale for intellectual capital disclosure 42

3.7 The practice of intellectual capital disclosure 44

3.7.1 Company practices in the stand-alone IC disclosure 44
3.7.2 Working groups on guidelines for IC disclosure 45
3.7.3 The investigation of intellectual capital disclosure in the 47
corporate media

3.8 Prior studies of intellectual capital disclosure 48

3.8.1 Studies in a single country 48
3.8.2 Inter-country comparative studies 54
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3.8.3 Studies of specific industries 55

3.9 The limitations of previous studies and rationale for longitudinal
study 62

3.10 Cross sectional effect of intellectual capital disclosure 64

3.11 Underpinning theories of intellectual capital disclosure 71

3.11.1 Agency theory 73
3.11.2 Signalling theory 75
3.11.3 Legitimacy theory 77
3.11.4 Stakeholder theory 78
3.11.5 Decision usefulness 80
3.11.6 Impression management 82

3.12 Chapter summary 85

Chapter 4 Qualitative characteristics of IC information content

4.1 Introduction 87

4.2 Different approaches to analysing content of corporate disclosure 87

4.3 Content analysis approaches used in IC disclosure studies 89

4.4 Limitations of the volumetric analysis of information disclosure 95

4.5 Calls for research into the qualitative characteristic analysis of
disclosure 97

4.6 Chapter summary 99

Chapter 5 Content analysis: methodology and issues

5.1 Introduction 100

5.2 Definitions of content analysis 101

5.3 Advantages and benefits of content analysis 102

5.4 An overview of the process of content analysis 103

5.5 Important issues in recording information 105

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5.5.1 The construction of categories of information 105
5.5.2 The generic concept of unitising 107
5.5.3 Issues in recording units 109
5.5.4 Systems of counting information 111

5.6 The reliability and validity of content analysis 113

5.6.1 Reliability 113

5.6.2 Validity 115

5.7 Chapter Summary 116

Chapter 6 Method Development

6.1 Introduction 117

6.2 Constructing the IC sub-categories 117

6.3 Recording for qualitative characteristics of IC information
content 120

6.3.1 Qualitative characteristic type 1: the nature of IC information 121
6.3.2 Qualitative characteristic type 2: the timing orientation of IC
information 124
6.3.3 Qualitative characteristic type 3: the factuality of IC information 127

6.4 Unitising 130

6.5 Media selection: annual reports 133

6.6 Locations covered in the annual reports 134

6.7 Reliability 135

6.8 The sample 138

6.9 Chapter summary 141

Chapter 7 Findings and discussion

7.1 Introduction 143

7.2 Findings overview of IC information disclosure of all companies 144

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7.3 Key finding 1: an overall longitudinal increase in the volume of
IC disclosure, 1974-2008 147

7.4 Key finding 2: findings on IC categories and predominance of
RC information disclosure over SC and HC 150

7.5 Key finding 3: findings on longitudinal effect IC sub-categories
ranking order (all companies) 156

7.6 Key finding 4: findings of the sectoral membership effects on the
IC information disclosure 163

7.7 Key Finding 5: the specific prominence of brand information
disclosure-sectoral and longitudinal variability 177

7.8 Key finding 6: findings on qualitative characteristics of IC
information content 180

7.8.1 Qualitative characteristics type 1: nature of information 181
7.8.2 Qualitative characteristics type 2: time orientation of information 187
7.8.3 Qualitative characteristics type 3: factuality of information 192

7.9 Key findings 7: qualitative characteristics of IC information by
sub-categories 196

7.10 Key findings 8: relationship between accounting disclosure
theories and IC 202

7.11 Chapter Summary 205

Chapter 8 Concluding remarks

8.1 Introduction 207

8.2 Summary of the study 207

8.3 Answering the research questions 212

8.4 Summary of original contributions 216

8.4.1 Understanding IC disclosure 216
8.4.2 Method enrichment 220

8.5 Self reflection 221

8.5.1 Limitation of study 221
8.5.2 The way ahead 222

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8.6 Chapter summary 224

References 225

Appendix A 261

Appendix B 267

Appendix C 283

Appendix D 299

Appendix E 300

Appendix F 301

Appendix G 302

Appendix H 308

Appendix I 309

Appendix K 310

Appendix M 311

Appendix N 312

Appendix O 315

Appendix P 316

Appendix Q 317

Appendix R 323

Appendix S 324

Glossary 325

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