...Intellectual Capital Disclosure Practices and Effects on the Cost of Equity Capital: UK Evidence Researchers: Musa Mangena Richard Pike Jing Li Intellectual Capital Disclosure Practices and Effects on the Cost of Equity Capital: UK Evidence by Musa Mangena Richard Pike Jing Li University of Bradford Published by The Institute of Chartered Accountants of Scotland CA House, 21 Haymarket Yards Edinburgh EH12 5BH First Published 2010 The Institute of Chartered Accountants of Scotland © 2010 ISBN 978-1 904574-14-9 EAN 9781904574149 This book is published for the Research Committee of The Institute of Chartered Accountants of Scotland. The views expressed in this report are those of the authors and do not necessarily represent the views of the Council of the Institute or the Research Committee. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the authors or publisher. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopy, recording or otherwise, without prior permission of the publisher. Printed and bound in Great Britain by T. J. International Ltd. C 1. ontents Foreword ...................................................................................... i Acknowledgements ......................................................
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...Development of human resource in terms of mentality and intellectual capital is one of aimed areas under Ninth Malaysia Plan in Malaysia. To enhance the core competence, Malaysia has to convert from labor-intensive goods production to utilization of human knowledge and skills. Research by Tan (2000) found that only few companies listed in Bursa Malaysia reports intangible assets and a small percent of total assets of these companies disclosed intangibles other than goodwill. Thereby, it is aimed to enhance that Malaysian companies should voluntarily disclose intellectual capital in their financial statements. This research measures to the scope length of intellectual capital disclosure and the connection between intellectual capital and corporate governance variables among Malaysian listed companies after the revision of Malaysian Corporate Code of Governance on 2007.Key amendments emphasized to the Code are based on fortifying board of directors and audit committee functions, qualification criteria for appointment, boards composition, frequency of meetings and necessity for continuos training. The code requirements enables shareholders to assess the annual report more transparently. Intellectual Capital DIsclosure Intellectual capital are intangible assets that provides value to a firm`s core competence and it consists of three components namely, tacit knowledge and innovativeness of employees, infrastructure of human capital and external relationship of the firm. It is the key...
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...way to report intellectual capital Summary In today’s knowledge economy, intellectual capital has been playing an increasingly significant role in creating corporate sustainable competitive advantages and becomes instrumental in determining the enterprise value. Though measuring the value of intellectual capital is difficult, with the emerging of intellectual capital valuation models, a number of leading companies have decided to make additional intellectual capital disclosure. This paper discusses and illustrates the intellectual capital statement. How to effectively measure and disclose intellectual capital in external financial reporting and how the accounting rules for reporting intangibles limit the recognition of intellectual capital and will also be discussed. The final part is proposed approaches to intellectual capital reporting. Introduction Our world is in the rise of new economy, principally driven by the information and knowledge. Today, a number of companies and organizations rely heavily on the knowledge and skills of their stuff and the network of the customer. As these intangible assets became increasingly critical, the limitations on financial statements in explaining a company’s value stress the fact that the source of economic value is no longer the production of material goods but the creation of intellectual capital. Background Definition Stewart first defined intellectual capital as intellectual material-knowledge, information, intellectual property...
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... The primary purpose of this essay is to comparatively analyze information disclosure of intellectual capital in the UK and China, using the content analysis method on company annual reports. In contemporary society, the importance of intellectual capital (IC) and the popularity of using IC to value a company’s competitiveness have been increasing. The definition offered by the Chartered Institute of Management Accountants (2001) is probably one of the most comprehensive definitions: “…the possession of knowledge and experience, professional knowledge and skill, good relationships and technological capacities, which when applied will give organizations competitive advantage.” Predicting a company’s future market performance is one of the key functions of IC information disclosure (Roslender and Fincham, 2004). Consequently, IC will have a significant role in the future value creation process. This study has some limitations, such as the small sample number, which has implications for how representative the data are. Ten companies in the respective stock markets were selected in the UK and China (total twenty) and content analysis was performed. A larger sample would have made the calculations too complex for the time available. The following paper reports the results of empirical research indicating that the trend of IC information disclosure is steadily increasing in both China and the UK, indicating that British...
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...available at www.emeraldinsight.com/0025-1747.htm Intellectual capital disclosure and intangible value drivers: an empirical study Philip Vergauwen Faculty of Applied Economic Sciences, Universiteit Hasselt, Hasselt, Belgium ICDs and intangible value drivers 1163 Received February 2007 Revised May 2007 Accepted May 2007 Laury Bollen Faculty of Economics and Business Administration, Department of Accounting and Information Management, Universiteit Maastricht, Maastricht, The Netherlands, and Els Oirbans PriceWaterhouseCoopers, Eindhoven, The Netherlands Abstract Purpose – This paper aims to study the relationship between intellectual capital disclosures (ICDs) and the relative importance of intangible assets as company value drivers. Design/methodology/approach – Annual reports of Swedish, British and Danish firms are analysed to measure the extent of ICD. The level of intellectual capital (IC) in firms, measured with proxies for the categories of human, structural and relational capital. Findings – As to the components of IC, the empirical results indicate that there is a strong significant positive relationship between (the level of) structural capital possession of a firm and the firm’s ICD. Practical implications – This suggests that firms with a relatively high level of structural capital, disclose more information on IC in the annual report. The study found no such significant association between human and relational capital in firms and ICD regarding these items. Firms...
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... SUBJECT: TERM PAPER HUMAN CAPITAL TABLE OF CONTENT 1. INTRODUCTION 1 2. INTELLECTUAL CAPITAL 2 2.1 Definition of Intellectual Capital 2 2.2Characteristics of Intellectual Capital 2 2.3 Components of intellectual capital 3 2.3.1 Human Capital 3 2.3.2 Structural Capital 3 2.3.3 Relational External Capital 5 3. MANAGING INTELLECTUAL CAPITAL 7 3.1 Tacit knowledge 8 3.2 Explicit knowledge 8 4. MEASURING INTELLECTUAL CAPITAL 12 4.1 Why should Intellectual Capital be measured? 12 4.2 Why is intellectual capitalso hard to measure? 12 4.3 Methods for measuring intellectual capital 13 5. INTELLECTUAL CAPITAL REPORTING FRAMEWORKS 14 5.1 Balanced Scorecard 14 5.2 Intangible Assets Monitor (IAM) 14 5.3 Skandia Value Scheme (SVS) 15 5.4 Challenges in reporting intellectual capital 15 5.5 Challenges in disclosure of intellectual capital 16 6. VALUATION OF INTELLECTUAL CAPITAL 17 6.1 Value added approach 17 6.2 Value creation index 18 6.3 Valuation models 20 6.3.1 Traditional valuation models 20 6.3.2 Static valuation models 21 6.3.3 Dynamic valuation models 21 6.3.4 Real option models (ROM) 22 7. CONCLUSION 23 INTRODUCTION Capital, in the business context, refers to any asset that will produce...
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...IMPACT OF INTELLECTUAL CAPITAL ON FINANCIAL PERFORMANCE - AN EMPERICAL STUDY ON THE INDIAN BANKING SECTOR. Abstract: Purpose: Present study makes an attempt to examine the impact of intellectual capital on financial performance of firms based on a sample consisting of 12 Indian banking companies which constituted the CNX Banking index of NSE during 2012-13. More specifically, it seeks to examine the impact of the IC represented by VAIC and the value added, on corporate financial performance measured by return on assets, earnings per share, and return on equity. Design/methodology/approach: In this study VAIC™ is considered as a key valuation model for measuring the IC performance of Indian Banking Companies. Capital employed, human capital and structural capital are used as components of intellectual capital and return on assets (ROA), return on equity (ROE) and Earning Per Share (EPS) indexes are used as criteria of financial performance. The value of three performance measures i.e. Return on Equity (ROE), Return on Assets (ROA), and Earning Per Share (EPS) are obtained from the annual reports of respective banks, whereas the values of VAIC and Value added are computed using appropriate formula and the ranking is made. The companies having highest value is ranked 1, next highest is ranked as 2, and so on. Next, a bar chart is prepared using the computed values of HCE, SCE, CEE representing various components of intellectual capital efficiency which constitute the VAIC...
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...Maximizing the intellectual capital of the organization Table of contents 1. Introduction……………………………………………………….3 2. Definition of the concept………………………………………….4 3. Ways of maximization and important aspects IC………………....4 4. Conclusions………………………………………………………..5 5. Bibliography……………………………………………………….9 1. Introduction With their practical and organizational experiences, working habits, interpersonal relations and motivation, people influence a company’s business performance and activities. It is very difficult though to measure the influence of knowledge, i. e. to quantify...
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...adequately reviewed and objectively criticized so that more comprehensive could be developed. The study revealed that the conceptualization of HRA, the ideas incorporated therein, and arguments are good for the accounting profession and corporate financial reporting. But the existing models yet proposed are not in a state to implement HRA practice worldwide. Hence this paper proposes a solution in line with existing framework of accounting that could be adopted by the standard setters. The study, however, recommends that more interest should be accorded to the concept of HRA in order to stimulate more comprehensive researches aimed at simplifying the concept and boosting its applicability. Key Words: Human Resource Accounting (HRA), Human Capital, Intellectual...
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...Intellectual Property and Developing Countries Intellectual Property and Developing Countries The World Intellectual Property Organization (WIPO) describes Intellectual property (IP) as creations of the mind: inventions, literary and artistic works, and symbols, names, images, and designs used in commerce. Because Intellectual property is not physical, it poses some difficulty when trying to establish and enforce laws to protect it. The most common ways of protecting Intellectual property are done through patents, trademark and copyrights. Patents and trademark laws protect inventions, trademarks industrial designs, and geographic indications of source (i.e. symbols that specifically distinguish the source of goods); and copyright laws cover literary works, choreography, novels, paintings and architectural designs. Although it is a somewhat controversial issue, I have found that it is very necessary for developing countries to have customized intellectual property laws. These laws will aid in efficiently accessing and sharing of research and technological information, increased innovation, and present a more enticing environment for Foreign Domestic Investments (FDI). Although greatly debated, in the biotechnology and the pharmaceutical industry, strong intellectual property rights are very important and can literally save lives. In China alone stronger IPR laws that prevent counterfeiting could save as many an astronomical number of lives each year. The World Health...
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...Intellectual Capital (IC), Social Capital (SC) and Intellectual Property (IP) (1) Intellectual Capital - “the difference between the market value of a publicly held company and its official net book value is the value of its intangible asset.” (sviebly 1997) - Example: stock prices change in response to changes in management of an enterprise (Microsoft, oracle, SAP) - Can be highly volatile entity and dependent on daily fluctuation of capital market - However may create tangible risks for investors and other stakeholders. - Organisation for Economic co-operation and development (OECD) treats IC as a subset of the overall intangible base of an organization such as its reputation. - Measurement of IC can be viewed as a continuation of the historical approaches to measure HR performances. Identify meaningful and reliable HR measures of greatest concern to the organization Develop measures whose potential benefits outweigh the expense or difficulty of data collection HR performance is used for benchmarking “balanced scorecard” was likely to provide senior managers with a fast single report on organizational performance Provide management with extra internal indicator to establish cause-and-effect relationship & examine performance drivers. (2) Social Capital - the networks of relationship (and trust) that a person organization has established with customers, suppliers and other key stakeholders. (3) Intellectual Property - is the legally or contractually...
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...MEANING OF INTELLECTUAL CAPITAL This is the intangible value of a company, and is measured as the difference between the enterprise value of a company and the market value of its tangible assets. Intellectual capital is knowledge that can be exploited for some money-making or other useful purpose. The term combines the idea of the intellect or brain-power with the economic concept of capital, the saving of entitled benefits so that they can be invested in producing more goods and services. Intellectual capital can include the skills and knowledge that a company has developed about how to make its goods or services; individual employees or groups of employees whose knowledge is deemed critical to a company's continued success; and its aggregation of documents about processes, customers, research results, and other information that might have value for a competitor that is not common knowledge. Classification of Intellectual capital • Human capital- The value that the employees of a business provide through the application of skills, know-how and expertise. It can be defined as all the unique ideas, skills, and knowledge that an individual owns and contributes to an organization. • Structural capital- Structural capital is the structures and mechanisms that help support employees and includes procedures, routines and everything that is left in the organization. It includes processes, intangible assets like patents, and trademarks, as well as the organization’s image, information...
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...adequately reviewed and objectively criticized so that more comprehensive could be developed. The study revealed that the conceptualization of HRA, the ideas incorporated therein, and arguments are good for the accounting profession and corporate financial reporting. But the existing models yet proposed are not in a state to implement HRA practice worldwide. Hence this paper proposes a solution in line with existing framework of accounting that could be adopted by the standard setters. The study, however, recommends that more interest should be accorded to the concept of HRA in order to stimulate more comprehensive researches aimed at simplifying the concept and boosting its applicability. Key Words: Human Resource Accounting (HRA), Human Capital, Intellectual...
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...Intellectual Property Rights and Economic growth “Imagination is more important than knowledge” – Albert Einstein Albert Einstein’s preference of imagination over knowledge speaks well to the potential capabilities of enterprises and businesses. If a creative idea is discovered, it can be transformed into innovative products. Innovation is instrumental among other things in creating new jobs, providing higher incomes, offering investment opportunities and curing disease. “There is wide agreement that innovation and entrepreneurial activity are the engines of long-run economic growth” (Hill 63). Intellectual property rights have become a significant factor in both creating and using ideas that are translated into knowledge and inventions to promote innovation and economic growth. Through this paper I will discuss the importance of protecting intellectual property and its impact on economic development. What is intellectual property and IPR’s? “Intellectual property refers to property that is the product of intellectual activity” (Hill 54). It might be a poem that you write, a computer software, a mother’s invention of saline Boogie Wipes for babies or a formula for a new drug. Creators can be given the right to prevent others from using their inventions, designs or other creations and to use the right to negotiate payment in return for others to use them. These are “Intellectual property rights”. They allow the creator or owner of a patent, trademark, or copyright...
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...Final Draft Published in Journal of Intellectual Capital Volume 9, No. 1, 2008, pp. 5-24 Verna Allee verna@vernaallee.com Published in Journal of Intellectual Capital Volume 9, No 1, 2008 pp. 5-24 Page 1 of 21 Introduction One of the most important and challenging questions in working with intangibles is, “How do we convert intangible assets such as human knowledge, internal structures, ways of working, reputation, and business relationships into negotiable forms of value?” Value network analysis offers a way to model, analyse, evaluate, and improve the capability of a business to convert both tangible and intangible assets into other forms of negotiable value, and to realise greater value for itself. Underlying this approach is an understanding that intangible, but nonetheless strong and dynamic relationships, and the intangible assets that make up and have an impact on those relationships, are the foundation of any successful business endeavor. Indeed, the future success of a company or organisation as a whole depends on how efficiently a company can convert one form of value into another. An example of value conversion occurs when an intangible asset such as professional expertise is converted into a more negotiable form of value, perhaps in the form of consulting services. The conversion dynamic also applies to value realisation. An example is when a tangible value input, such as purchased market intelligence reports, is converted into a nonfinancial asset...
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