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Accounting Forum 31 (2007) 129163
Lifting the lid on the use of content analysis toinvestigate intellectual capital disclosures
Vivien Beattie a, Sarah Jane Thomson b,a Department of Accounting and Finance, University of Glasgow, 65-73 Southpark Avenue,
Glasgow G12 8LE, UKb Department of Accountancy and Finance, School of Management and Languages,
Heriot-Watt University, Edinburgh EH14 4AS, UK
This methods paper highlights specific issues that arise in using content analysis to investigate intellectualcapital (IC) disclosures. The use of content analysis in the IC context is debated through an analysis of priorstudies and the use of an illustrative example (Next plcs 2004 annual report). It is concluded that the depthand breadth of the IC concept and the lack of common definitive language make it difficult to establish theextent and nature of disclosure currently provided. The range of choices available to researchers in termsof analysing and measuring IC disclosures further hinders interpretation and comparability. Transparencyin the choices made is required. Shared meanings could be developed and the IC concept better understoodthrough increased transparency in the categorisation of IC information, which in turn could further assist inthe interpretation and comparison of findings across studies. 2007 Elsevier Ltd. All rights reserved.
Keywords: Intellectual capital; Corporate disclosure; Methods; Content analysis
Content analysis has become a widely used method of analysis in financial accounting research(Beattie, 2005). In recent years, several papers in accounting journals have identified and discussedsignificant issues regarding the use of content analysis to investigate accounting disclosures. Onestrand of this literature takes corporate social reporting (CSR) as its context (i.e. Hackston &Milne, 1996; Milne & Adler, 1999; Unerman, 2000). More recently, the topic area of intellectualcapital (IC) disclosures has been explored (Abeysekera, 2006; Guthrie, Petty, Yongvanich, &Ricceri, 2004). The present paper contributes to the latter area of enquiry.
Corresponding author. Tel.: +44 131 451 3559; fax: +44 131 451 3296.E-mail addresses: V.Beattie@accfin.gla.ac.uk (V. Beattie), S.Thomson@hw.ac.uk (S.J. Thomson).
0155-9982/$ see front matter 2007 Elsevier Ltd. All rights reserved.doi:10.1016/j.accfor.2007.02.001
130 V. Beattie, S.J. Thomson / Accounting Forum 31 (2007) 129163
IC is the term attributed to intangible assets which create company value (Mouritsen, Larsen,& Bukh, 2001). It is, at least in part,1 reflected in the difference between market and book values,as the value and impact of intangibles are inadequately reflected in the traditional accountingframework (Cordon, 1998). To highlight the potential significance of IC, studies have reportedmarket-to-book multiples in excess of unity. For example, Gu and Lev (2004) report that theS&P 500s average market-to-book ratio was 4.5 in September 2003 indicating for every US$ 4.5of market value, only US$ 1 appears on the balance sheet. Beattie and Thomson (2005) foundthe mean market-to-book value for the UK FTSE 100 companies to be 2.52 based on data foryear-end 2002/2003. In light of this evidence, a method for reporting IC information to externalstakeholders appears to be required.
The term IC is now widely used among regulators, professional bodies and academics. Manyattempts have been made at formal definition. However, according to Guthrie, Petty, & Johanson(2001), intellectual capital frequently is poorly defined or is not defined at all. Zambon (2005)has stated that a generally agreed taxonomy is needed. Despite this apparent stumbling block,considerable efforts have been made to develop models for IC reporting (e.g. DATI, 2000, 2002;DMSTI, 2003; Edvinsson & Malone, 1997; Lev, 2001; Sveiby, 1997). Suggestions have been madeto extend the balance sheet to integrate IC, or to create complementary balance sheets (Rylander,Jacobsen, & Roos, 2000). Recently, a focused narrative-based approach to IC reporting has beenproposed (DATI, 2000, 2002). However, the opportunity to report IC in narrative format alreadyexists within corporate annual reports.
Corporate annual report narratives may provide the opportunity for IC reporting, but what aboutthe incentive to do so? Voluntary disclosure of IC information can be explained in terms of theoriessuch as positive accounting theory (PAT), legitimacy theory and stakeholder theory (Deegan,2000; Deegan & Gordon, 1996). If company managers interests are aligned with shareholders,IC information will be disclosed if it brings benefits to the company (PAT). IC reporting providescompanies with the opportunity to take advantage of increased transparency to capital markets,establishing trustworthiness with stakeholders and to employ a valuable marketing tool (Vander Meer-Kooistra and Zijlstra, 2001). Disclosure of IC information could be self perpetuatingin terms of maintaining and enhancing IC value given that intangible asset creation occursthrough enhanced reputation and disclosure influences the external perception of reputation(Toms, 2002, p. 258). However, reluctance to report IC information may arise from fear of bothloss of competitive advantage and litigation.2 Companies may disclose IC information to appearlegitimate in the eyes of society and avoid the imposition of costs arising from non-legitimacy. Thedisclosure choices of comparable companies may shape legitimacy. IC disclosure may respondto the demands of the stakeholders most critical to the companys ongoing survival (managerialbranch of the stakeholder theory).
These theories are mutually consistent, IC disclosure being explained in terms of a cost-benefittrade-off. The ethical branch of the stakeholder theory appears to offer an alternative explanation.Companies recognise that different stakeholders have a right to IC information and so disclosure isresponsibility-driven. However, executing responsibilities in terms of disclosure is not necessarily
1 The difference between market and book values can result from other factors such as the undervaluation of tangibleand financial assets recognised in the balance sheet, intangible liabilities that are not captured in the balance sheet andmarket prices that do not accurately capture intrinsic value (Garca-Ayuso, 2003).
2 Elliot and Jacobson (1994) argue that increased informative disclosure actually decreases litigation costs as a resultof fewer allegations of insufficient disclosure. It also decreases litigation costs arising from allegations of misleadingdisclosures through smaller claims, better defences and fewer law suits.
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incongruent with increasing firm value. Another proposition (suggested by Miller, 1977, in thecontext of capital structure decisions) is neutral mutation. Companies fall into disclosure patternsor habits which have no material effect on firm value.
Given these theoretical explanations for disclosing (not disclosing) IC information, what iscorporate practice? The disclosure of IC information in annual reports is beginning to be investi-gated using content analysis (e.g. Bozzolan, Favotto, & Ricceri, 2003; Brennan, 2001; Guthrie &Petty, 2000). (Other accounting-related documents that have been studied are IPO prospectuses,e.g. Bukh et al., 2003, presentations to analysts, e.g. Garca-Meca, Parra, Larran, & Martnez,2005, and analyst reports, e.g. Arvidsson, 2003.) This type of investigation could potentially servetwo purposes. First, to measure the extent to which different categories of IC information are dis-closed. Second, IC reporting in practice provides valuable examples of attempts to understand andcapture the IC concept (Van der Meer-Kooistra and Zijlstra, 2001). Practical experiences wouldassist in the development of a generally agreed taxonomy of IC terms, as called for by Zambon(2005).
To date, content analysis appears to have been mainly used with the aim of quantifying thenumber of IC disclosures, typically in relation to 22-25 categories of IC information. The observedlevel of IC disclosure has consistently been described as low, and this has been attributed tothe lack of an established IC reporting framework and the general lack of a proactive stanceby companies in attempting to measure and externally report IC information (Guthrie & Petty,2000). However, the lack of an established IC reporting framework hinders not only the companiesdisclosing information. The depth and breadth of the IC concept evident in the academic literature,and the subjectivity involved in constructing an operational IC definition, could also be said tohinder researchers aiming to quantify IC disclosures. In this context, it is essential that the precisedetails of the content analysis method used are transparent, to allow findings to be interpretedand to make comparisons (or not) across studies. Transparency is important because the contentanalysis method used to investigate disclosures is reflective of the researchers conception ofreality (Gray, Kouhy, & Lavers, 1995) what the researchers perceive constitutes IC rather thanany potential objective reality which exists in relation to the IC concept. Despite this importance,a general lack of transparency in the content analysis methods used in the IC disclosure studiesto date is apparent. Increased transparency in relation to the IC information found and how itis categorised would also clarify researchers understanding of the IC concept and assist in thedevelopment of shared meanings.
This need for transparency and the development of shared meanings has already been recog-nised by researchers in the CSR context. As noted in Gray et al. (1995, p.