Corporate Intellectual Capital Reporting: the Case of Germany

Viktoria Göbel

doi:10.3790/978-3-89644-677-0

Corporate Intellectual Capital Reporting: the Case of Germany

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Göbel, V. (2014). Corporate Intellectual Capital Reporting: the Case of Germany. Verlag Wissenschaft & Praxis. https://doi.org/10.3790/978-3-89644-677-0

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Corporate Intellectual Capital Reporting: the Case of Germany

Göbel, Viktoria

Meyer=Stiftung, Vol. 13

(2014)

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Publisher Name: Verlag Wissenschaft & Praxis
ISBN: 978-3-89644-677-0
978-3-89673-677-2 (print edition)
DOI: https://doi.org/10.3790/978-3-89644-677-0
Edition: 1
Language: English
Pages: 282
Collections: NBE WISO
NBE D&H
Subjects: Business & Management
Capital markets & securities law & regulation

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Institution: € 76.00 (incl. local VAT if applicable)
Individual: € 49.90 (incl. local VAT if applicable)

Abstract

Intellectual capital (IC) consists of intangible resources and is considered to equip a company with competitive advantages, encompassing efficient internal structures, beneficial relations to primary stakeholders and employee competencies. IC has been argued to considerably contribute to corporate value creation. As IC reporting represents a central communication platform for this important form of capital, a separate area of research has developed on IC reporting.

This study examines potential motivations for IC reporting in management reports of 428 listed German companies for the accounting year 2010. Germany offers a unique research setting for IC reporting due to a mandatory Management report containing information on IC. To infer motivations, agency theory and legitimacy theory are applied to test which theory better explains IC reporting. According to agency theory, companies report on their IC to reduce the Information gap between managers and owners, interpreted in this study as explaining the value creation process for IC. In contrast, legitimacy theory suggests that corporate IC reporting serves as a tool to legitimise the company’s market position, which is investigated by looking at corporate mispricing and the proportion of intangible resources. The study is structured in three research projects.

The first two projects analyse methodological approaches, providing the Basis for testing theories in project three. In the first project, a novel measure to estimate IC value is identified in the area of mergers and acquisitions research and innovatively applied to IC research. The second project supports a parsimonious design of a research framework for an IC content analysis. In the final project, the results show that legitimacy theory better explains IC reporting compared to agency theory. According to the findings, IC reporting is motivated to legitimise a company’s market position and to justify the use of intangible resources.

Section Title	Page	Action	Price
Foreword	5
Meyer-Stiftung	6
Preface	9
Table of Contents	11
List of Tables	17
List of Figures	19
Abbreviations	20
1 Introduction	21
1.1 Motivation for this study	21
1.1.1 New reporting models for intellectual capital	21
1.1.2 Intellectual capital reporting in Germany	22
1.2 Research questions and contribution	24
1.2.1 Research questions	24
1.2.2 Overview of the research approach	26
1.2.3 Focus of this study	26
1.2.4 Contribution	27
1.3 Main results	27
1.3.1 Estimating a measure of IC value	27
1.3.2 Designing a parsimonious research framework for IC content analysis	28
1.3.3 Applying agency theory and legitimacy theory to IC reporting	29
1.4 Structure of thesis	30
2 Review of literature on intellectual capital reporting	33
2.1 Introduction	33
2.2 The concept of IC	34
2.2.1 Definitions of IC	34
2.2.1.1 Defining IC based on its effect	34
2.2.1.2 Defining IC in categories	35
2.2.1.3 Defining IC by setting outer boundaries	35
2.2.1.4 Different terminologies for IC	36
2.2.2 IC within corporate reporting	36
2.2.2.1 IC in the balance sheet	36
2.2.2.2 IC in the income statement	37
2.2.2.3 IC in corporate documents	37
2.2.3 Development of IC research in three stages	38
2.3 IC reporting research	39
2.3.1 Approaching IC reporting	39
2.3.2 Investigating IC reporting in content analysis studies	40
2.3.2.1 Developing research frameworks for IC reporting	40
2.3.2.2 Influences between and across IC research frameworks	41
2.3.2.3 Comparability across IC reporting studies	43
2.4 Methodological considerations in IC reportingresearch	44
2.4.1 Comparison of approaches in IC reporting research	44
2.4.2 Theories related to IC reporting	44
2.4.3 Sample selection for IC reporting studies	47
2.4.3.1 Sample size	47
2.4.3.2 Focus on large companies	47
2.4.4 Considerations of time	48
2.4.4.1 Controlling for time	48
2.4.4.2 Longitudinal studies	48
2.4.5 Country focus in IC reporting studies	49
2.4.5.1 Country-specific issues in IC reporting	49
2.4.5.2 Cross-country studies	50
2.4.5.3 Controlling for country-specific issues in IC reporting	51
2.4.6 Communication channels under review	51
2.4.6.1 Range of communication channels	51
2.4.6.2 Investigating several communication channels	52
2.4.7 IC reporting across industry sectors	53
2.4.7.1 IC reporting across different industries	53
2.4.7.2 Single or dichotomous industry grouping	53
2.4.7.3 Numerous industry groupings	54
2.4.8 Unutilised IC reporting information in prior studies	54
2.5 Conclusion	55
3 German context for researching intellectual capital reporting	59
3.1 Introduction	59
3.2 German management report	60
3.2.1 Historic development of the management report	60
3.2.2 German Accounting Standard 15 (GAS 15)	62
3.2.3 GAS 15 recommendations related to IC	64
3.2.4 Revision of GAS 15 in 2010	66
3.2.5 New standard on combined management and risk reporting GAS 20	67
3.3 Movements towards IC management and reporting in Europe	69
3.3.1 European projects and guidelines on IC reporting	69
3.3.2 German ‘Wissensbilanz’	71
3.4 German setting for IC reporting	72
3.4.1 National efforts on knowledge resources	72
3.4.2 Strong stakeholder representation	73
3.5 Conclusion	74
4 Methodology overview	77
4.1 Introduction	77
4.2 Research questions	77
4.2.1 Summary of research questions	77
4.2.2 Underlying assumptions	78
4.3 Research design	79
4.3.1 Research setting	79
4.3.2 Approaching the research questions in three projects	79
4.3.2.1 Overview of research approach	79
4.3.2.2 Project one: estimating a measure of IC value	80
4.3.2.3 Project two: designing a parsimonious framework for IC content analysis	81
4.3.2.4 Project three: applying agency theory and legitimacy theory	81
4.3.3 Intended interviews for triangulation	82
4.4 Sample selection	84
4.4.1 Sample for measuring IC value in project one	84
4.4.2 Sample for investigating IC reporting in projects two and three	85
4.4.3 Industry grouping	86
4.4.4 Issues with database Datastream	90
4.5 German company characteristics	91
4.5.1 Variety of shares	91
4.5.2 Proportion of debt	92
4.5.3 Adoption of international reporting standards in Germany	93
4.6 Limitations of the study	94
4.7 Conclusion	95
5 Estimating a measure of intellectual capital value to test its determinants	97
5.1 Introduction	97
5.2 Literature review	99
5.2.1 Importance of measuring IC value	99
5.2.1.1 IC as strategic advantage for corporate performance	99
5.2.1.2 Purposes of measuring IC value	100
5.2.1.3 Difficulties in measuring IC value due to data availability	100
5.2.2 Approaches to measure IC value	101
5.2.2.1 Overview of approaches to measure IC value	101
5.2.2.2 Resource-based approaches to measure IC value	101
5.2.2.3 Component-based approaches to measure IC value	103
5.2.2.4 Holistic market-based approaches to measure IC value	104
5.2.3 Addressing weaknesses of MtB as measure of IC value	106
5.2.3.1 Historic cost accounting in MtB	106
5.2.3.2 Focus on long-run value to account for fluctuations in MtB	107
5.2.4 Aspects to be considered when measuring IC value	108
5.2.4.1 Importance of industry	108
5.2.4.2 Levels of IC value rather than monetary values	109
5.2.4.3 Lagged effect of IC value	109
5.2.5 Potential determinants of IC value	110
5.2.5.1 Applying the measure of IC value to test its determinants	110
5.2.5.2 Potential determinants of IC value from financial statements	110
5.2.5.3 Potential determinants of IC value in the financial structure	111
5.2.5.4 Potential determinants of IC value in company characteristics	112
5.3 Research design	113
5.3.1 Sample of German companies	113
5.3.2 Estimating Tobin’s q	114
5.3.3 Estimating LRVTB	116
5.3.3.1 Decomposing MtB	116
5.3.3.2 Three models for estimating LRVTB	117
5.3.3.3 Applied model for estimating LRVTB	118
5.3.4 Comparing IC value measures	122
5.3.4.1 Regression model to compare IC value measures	122
5.3.4.2 Vuong’s closeness test to test hypotheses on IC value measures	123
5.3.5 Testing hypotheses on determinants of IC value	125
5.4 Results	127
5.4.1 Results for comparing measures of IC value	127
5.4.1.1 Descriptive results for IC value measures	127
5.4.1.2 Regression results of comparing measures of IC value	129
5.4.1.3 Results for Vuong’s closeness test for IC value measures	131
5.4.2 Results for determinants of IC value	132
5.4.2.1 Regression results for determinants of IC value	132
5.4.2.2 Results for testing hypotheses on determinants of IC value	134
5.5 Conclusion	135
6 Content analysis of intellectual capital reporting – Parsimony in research design	139
6.1 Introduction	139
6.2 Literature review	140
6.2.1 Investigating IC reporting with research frameworks	140
6.2.2 Comparison of high-level IC categories in research frameworks	141
6.2.2.1 Development of high-level IC categories	141
6.2.2.2 Differences in labelling IC categories	142
6.2.2.3 Variations in the number of IC categories	144
6.2.2.4 Tendency to a common terminology for IC categories	144
6.2.2.5 Views on ‘strategy’ as IC category	145
6.2.3 Comparison of lower-level IC components in research frameworks	145
6.2.3.1 Synopsis of IC components in research frameworks	145
6.2.3.2 Concentration on widely-used IC components	146
6.2.3.3 Different hierarchies in lower-level IC components	146
6.2.3.4 Varying classifications of IC components	150
6.2.3.5 Different labels for IC components	151
6.2.4 IC sub-groupings as suggested solution for disparities	151
6.2.5 Framing the research question	152
6.3 Research methods	153
6.3.1 Sample of German companies	153
6.3.2 German language characteristics	153
6.3.3 Content analysis	154
6.3.3.1 Coding words with repetition	154
6.3.3.2 Software-aided coding	154
6.3.3.3 Test for reliability of reporting scores	155
6.3.3.4 Summary of content analysis procedures	156
6.3.4 Pilot study to develop a research framework for German setting	157
6.3.5 Correlation analysis of IC components	158
6.3.5.1 Correlation analysis for a parsimonious research framework	158
6.3.5.2 Correlation analysis for comparability of prior studies	160
6.4 Pilot study to develop a research framework forIC reporting	162
6.4.1 Developing a research framework for IC reporting	162
6.4.1.1 Approaching IC reporting in Germany	162
6.4.1.2 IC research framework developed from pilot study findings	163
6.4.1.3 Pilot study findings on ‘strategy’ within the IC research framework	163
6.4.2 Pilot study results for German annual reports	167
6.4.2.1 Overview of pilot study results	167
6.4.2.2 Pilot study findings in management reports and CEO letters	167
6.5 Testing for parsimony and comparability	169
6.5.1 Content analysis results for the German sample	169
6.5.1.1 Descriptive results for total IC reporting by size	169
6.5.1.2 Role of widely-used IC components compared to total IC reporting	171
6.5.2 Correlation analysis for parsimony in the IC research framework	173
6.5.2.1 Correlation results for a parsimonious research framework	173
6.5.2.2 Interpretation of results for parsimony in research framework	177
6.5.2.3 Interpretation regarding corporate definition of IC reporting	177
6.5.3 Correlation analysis for comparability of prior studies	178
6.5.3.1 Correlation results for comparability of selected frameworks	178
6.5.3.2 Interpretation of results regarding comparability of prior studies	181
6.6 Conclusion	182
7 Applying agency theory and legitimacy theory to intellectual capital reporting	187
7.1 Introduction	187
7.2 Literature review	189
7.2.1 Calls for theory testing in the IC reporting literature	189
7.2.2 Potential motivations for IC reporting	190
7.2.2.1 Theories suggested to explain IC reporting motivations	190
7.2.2.2 Agency theory to explain IC reporting motivations	191
7.2.2.3 Signalling theory to explain IC reporting motivations	191
7.2.2.4 Stakeholder theory to explain IC reporting motivations	192
7.2.2.5 Legitimacy theory to explain IC reporting motivations	192
7.2.3 Agency theory and IC reporting	193
7.2.3.1 The concepts of agency theory	193
7.2.3.2 Linking agency theory to IC reporting	194
7.2.3.3 IC reporting to reduce information asymmetry	195
7.2.3.4 IC reporting to explain IC value	196
7.2.4 Legitimacy theory and IC reporting	197
7.2.4.1 The concepts of legitimacy theory	197
7.2.4.2 Linking legitimacy theory to IC reporting	198
7.2.4.3 IC reporting under legitimacy threat	199
7.2.4.4 IC reporting to legitimise intangible resources	200
7.3 Research methods	201
7.3.1 Sample of German companies	201
7.3.2 Measures of IC value and mispricing	202
7.3.3 Content analysis of IC reporting	202
7.3.4 Distinction of reporting types: required, recommended, voluntary	203
7.3.5 Statistical analysis of IC reporting	204
7.3.5.1 Statistical regression model to test hypotheses	204
7.3.5.2 Separate analyses regarding IC categories and reporting types	208
7.3.5.3 Considerations of proprietary costs	208
7.4 Results	209
7.4.1 Analysis of IC reporting by IC categories	209
7.4.1.1 Descriptive results by IC categories	209
7.4.1.2 Results of regression analysis by IC categories	211
7.4.2 Analysis of IC reporting by reporting types	215
7.4.2.1 Descriptive results by IC reporting types	215
7.4.2.2 Results of regression analysis by IC reporting types	217
7.5 Sensitivity test	220
7.5.1 Propensity score matching approach	220
7.5.2 Propensity score matching results	223
7.6 Conclusion	224
8 Conclusions	229
8.1 Introduction	229
8.2 Summary and discussion	230
8.2.1 Summary of research objectives	230
8.2.2 Summary of research approach	231
8.2.2.1 Overview of research approach	231
8.2.2.2 Project one: estimating a measure of IC value	232
8.2.2.3 Project two: designing a parsimonious framework for IC content analysis	233
8.2.2.4 Project three: applying agency theory and legitimacy theory	234
8.2.2.5 Dataset	235
8.2.3 Discussion of key findings	236
8.2.3.1 Estimating a measure of IC value	236
8.2.3.2 Designing a parsimonious content analysis for IC reporting research	237
8.2.3.3 Applying agency theory and legitimacy theory to IC reporting	238
8.3 Contribution of research	239
8.3.1 Contribution to the literature	239
8.3.2 Implications for policy and practice	240
8.4 Limitations and suggestions for future research	242
References	247
Appendix	259
List of IC components in English and German resulting from pilot study	259
Alphabetical Index	277

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