The status and determinants of intellectual capital disclosure in the annual reports of listed companies in New Zealand and Australia

Abstract

Over the past decade, industries the world over have witnessed the changing landscape of the global economy. The main resource in this new economy is knowledge and the latest stream of research into this area is intellectual capital. Intellectual capital exists within a company, but could be one that is not common to management. It should not, however, be neglected as it is fast becoming a determinant of a company's success. Consequently, there is increasing demand for its disclosure and for research to develop a framework for reporting intellectual capital. Several disclosure studies have been conducted in Australia, Ireland, Spain, Sri Lanka and Canada. These studies showed that various intellectual capital indicators are voluntarily disclosed in the annual reports of the companies studied.

In this study, the annual reports of New Zealand and Australian listed companies for the financial year ended 2002 were analyzed using content analysis to identify intellectual capital disclosure. Disclosure indices were subsequently developed for each company and were regressed against a few firm-specific variables. Specifically, the study sought to determine the status of the disclosure of intellectual capital in the annual reports of New Zealand and Australian listed companies, and the determinants of such disclosure.

The mean disclosure index for intellectual capital found in this study was low, i.e. 0.28. The highest disclosure index was 0.65 while the lowest was 0, indicating that there were companies that did not disclose intellectual capital. Of the intellectual capital disclosed, most of them were disclosed in the narrative form. The study also indicated that company size, stock price volatility, industry group, leverage and the market-to-book value ratio were significant determinants of the disclosure of intellectual capital in the annual reports. Profitability, which has been previously found in various studies to be a significant determinant of the disclosure of information in annual reports, was found to be an insignificant determinant of the disclosure of intellectual capital.