Intellectual capital disclosure in private sector listed companies in India

• Date: 01 January 2018
• Author: Rakesh Pandey,Sriyalatha Kumarasinghe,Dyna Seng
• Published date: 01 January 2018
• DOI: http://doi.org/10.1002/kpm.1560

RESEARCH ARTICLE

Intellectual capital disclosure in private sector listed companies

in India

Dyna Seng |Sriyalatha Kumarasinghe |Rakesh Pandey

Department of Accountancy and Finance,

University of Otago, Dunedin, New Zealand

Correspondence

Dyna Seng, Department of Accountancy and

Finance, University of Otago, PO Box 56,

Dunedin, New Zealand.

Email: dyna.seng@otago.ac.nz

This study aims to investigate the extent and variety of voluntary intellectual capital disclosure

(ICD) by listed private firms in India. It also compares the level of ICD of firms in the high‐IC‐inten-

sive and low‐IC‐intensive industry sector. In addition, it evaluates the effect of firm size on ICD

levels. Consistent with previous ICD research, the results show that relational capital (in particular

about “brands and customers”) is the most frequently reported, followed by human capital, and

lastly structural capital. In addition, the extent and variety of voluntary ICD by large firms is higher

than that of small firms. Again, consistent with prior research, high‐IC‐intensive firms disclose sig-

nificantly higher IC than low‐IC‐intensive firms. The findings of this study can have implications

for regulators, who may want to be aware of how voluntary ICD influences and informs users.

This study is one of the few that examines the extent of firms' voluntary ICD in India. It is the first

to investigate the extent and variety of voluntary ICD by incorporating two different measures—

count and presence—of each component of ICD.

1|INTRODUCTION

Intellectual capital (IC) is a significant resource (Drucker, 1993) and an

excellent source for generating wealth (Edvinsson & Sullivan, 1996).

In the era of globalised competition and the recent growth in knowl-

edge‐based companies in the world economy, measuring and

reporting IC has garnered much attention and recognition in the busi-

ness world. However, the nature of IC disclosure (ICD) is not yet

clear. Some researchers claim that even though the disclosure of IC

is not mandatory in financial statements, more and more enterprises

supply IC information in their annual reports (Ramanauskaite &

Rudzioniene, 2013). With the introduction of an integrated reporting

framework, there is also a derived demand for IC information. How-

ever, despite the interest and demand for this information, relatively

few large firms disclose IC voluntarily (Bhasin, 2014). The mismatch

between the findings in the existing research encourages thorough

research in the same area. This study explores the extent and variety

of the voluntary ICDs published by the top 100 listed private sector

firms in India. It also evaluates the influence of size and industry on

ICD levels.

Knowledge is one of the key sources of economic growth that cre-

ates both opportunities and challenges for a developing economy like

India (Dahlman & Utz, 2005). Since the economic reforms in 1991,

India has been transforming itself into a knowledge economy, and this

transformation has played an important role in achieving higher eco-

nomic growth (Raghwan, 2009). Although the Indian economy is

undergoing transformation, the Indian market is still underdeveloped,

and IC reporting is in the infancy stage, like other developing countries

(Kamath, 2008). Few studies looking at the growing importance of IC

for the Indian economy have focused on analysing IC reporting in India

(Kamath, 2007; Kamath, 2008; Singh & Kansal, 2011). Prior studies

have mainly focused on voluntary ICDs of a particular sector. For

example, Kamath (2007, 2008) analysed ICDs published by Indian

companies in the communication and technology sector, banking sec-

tor, and pharmaceutical industries. Unlike prior studies, this study is

not sector‐specific, instead, the study explores the IC disclosure in a

sample of top 100 listed firms in India. Our study complements prior

studies by exploring the extent (measured by count) and variety (mea-

sured by presence) of IC disclosure made by large Indian firms. Specif-

ically, we examine the extent and variety of ICD of the top 100 Indian

firms by market capitalisation for the 2011 financial year in high‐IC‐

intensive and low‐IC‐intensive industries.

1

We also examine the level

of ICDs made by different firm sizes.

The following research questions are addressed in this study.

What is the extent and variety of voluntary ICD made by the top

100 listed firms in India? What is the extent and variety of voluntary

ICD made by firms of different size and industry? Two different mea-

sures (count and presence) of ICDs were examined, and they were cal-

culated for each component of IC, namely, structural capital (SC),

relational capital (RC), and human capital (HC).

The remainder of this study is organised as follows. Section 2 pre-

sents the prior literature. The research design is developed in Section 3,

Received: 24 January 2017 Revised: 29 November 2017 Accepted: 22 December 2017

DOI: 10.1002/kpm.1560

Knowl Process Manag. 2018;25:41–53. Copyright © 2018 John Wiley & Sons, Ltd.wileyonlinelibrary.com/journal/kpm 41