Corporate governance and intellectual capital reporting in a period of financial crisis: Evidence from Portugal

Abstract

This paper uses an analytical frame comprised of agency theory and a resource based perspective to explore the influence of boards of directors on listed companies' voluntary disclosure of information concerning intellectual capital [IC]. The IC disclosures in 75 published company reports of 15 listed Portuguese companies in a five year period of financial crisis, 2007 to 2011, are investigated using content analysis and regression techniques. IC disclosures are found to increase with company size, dual corporate governance models, industry, listing on sustainability indexes, and increases in board size up to a maximum point (beyond which disclosures decrease). IC disclosures are reduced by CEO duality and by a higher proportion of independent directors on boards. The year of reporting is not significant, suggesting that the period of financial crisis did not influence the level of IC disclosures. The evidence adduced is consistent with a view that highly visible companies acknowledge the importance of IC disclosures in maintaining their reputation and competitive advantage, even during a period of financial crisis. This paper highlights the need for caution in believing that adding extra directors to an existing board will lead to improved disclosure outcomes. Additionally, given the token number of females appointed to boards currently, the Portuguese capital market regulator should consider enforcing measures to ensure compliance with EU objectives.

Corporate governance mechanisms and intellectual capital

“…Alcaniz et al (2015) explored the Initial Public Offerings' (IPOs) prospectuses, and García-Meca et al (2005) focused on examining reports issued by financial analysts, while, according to Tejedo-Romero and Araujo (2016), the levels of voluntary information collected in the annual reports directly refer to the amount of information that companies publish in the media, either in environmental reports, responsibility reports, company website, reports from financial analysts etc. Over the last decades, the number of studies referring to the disclosure of IC information has increased (García-Meca et al, 2005, Goebel, 2015, Rodrigues et al, 2017, Yi & Davey, 2010. Many of them are based on the initial framework of Sveiby (1997), later modified by Guthrie and Petty (2000) and replicated by other authors (Abeysekera & Guthrie, 2005;Bozzolan, Favotto, Ricceri, 2003;Oliveras et al, 2008;Tejedo-Romero & Alfaro-Cortés, 2014 to classify IC information into categories composed of a series of specific intangible elements.…”

“…Knowledge can be identified as a business asset (Sveiby, 1997;Tejedo-Romero & Araujo, 2016) that has become a key economic resource and the main competitive advantage (Brooking, 1997;Rodrigues, Tejedo-Romero & Craig, 2017). Knowledge can have different origins such as people, the organization, technology and the market or socio-economic environment, forming what is called "Intellectual Capital" (IC) (European Commission, 2006).…”

“…Knowledge can have different origins such as people, the organization, technology and the market or socio-economic environment, forming what is called "Intellectual Capital" (IC) (European Commission, 2006). Many researchers argue that IC significantly increases a company's value (Bukh, Nielsen, Gormsen, & Mouritsen, 2005;Rodrigues et al, 2017;Tejedo-Romero, & Alfaro-Cortés, 2014;Yi & Davey, 2010).…”

“…Many stakeholders are at a disadvantage in terms of information access and are forced to heavily rely on voluntary IC disclosure for their decision-making (Rodrigues et al, 2017;Vergauwen, Bollen & Oirbans, 2007). Thus, the purpose of IC disclosure should be to: a) provide relevant and quality information so that stakeholders can make efficient decisions (Abeysekera & Guthrie, 2005;Tejedo-Romero, & Alfaro-Cortés, 2014); b) reduce the asymmetries of information and improve relationships with stakeholders (Guthrie & Petty, 2000;Rodrigues et al, 2017); c) improve transparency between companies' managers and owners and other stakeholders (Vergauwen, et al, 2007;Yi & Davey, 2010); d) reduce the gap between the book value and the market value of the company (García-Meca, Parra, Larrán & Martínez, 2005); and e) create trust and reputation among stakeholders (Tejedo-Romero, 2016, Vergauwen, et al, 2007.…”

“…Few studies have attempted to establish relationships between IC disclosure, ownership structure and CG (Abeysekera, 2010;Cerbioni & Parbonetti, 2007;Hidalgo, García-Meca, & Martínez, 2011;Li, Pike, & Haniffa, 2008;Rodrigues et al, 2017). Institutional and legal differences in individual countries, in particular their ownership structure and CG system (unitary or dual), can lead to significant variations in governance models and revealed information.…”