Board Structure, Ownership Concentration and Intellectual Capital

This thesis investigates the influence of board structure and ownership concentration on the level and value relevance of intellectual capital disclosure. This thesis is motivated by the limited post-IFRSs (International Financial Reporting Standards) adoption intellectual capital disclosure studies carried out in a less stringent regulatory environment of New Zealand, and limited research addressing the determinants of the level and value relevance of intellectual capital disclosure. Based on an application of agency theory, cost-benefit theory and value relevance approach, this thesis argues that firm-specific factors are expected to have a significant impact on the level and value relevance of intellectual capital disclosure. Within the agency theory, board structure and ownership concentration mitigate agency costs by enhancing the monitoring function of the board over managers’ opportunistic behaviour, which consequently influence the level of intellectual capital disclosure. In addition, as New Zealand has less tough rules in relation to board structure and ownership concentration, it is expected that these relationships will be more easily identified in the New Zealand context. Second, as most of the intellectual capital disclosure is voluntary, this disclosure is subject to a firm’s cost-benefit analysis. Cost-benefit theory suggests that a firm should not fully disclose its information unless the benefits outweigh the costs of the disclosure. Therefore, the level of intellectual capital disclosure is also influenced by the factors that determine the costs and benefits of the disclosure. Finally, this thesis adopts the value relevance approach to measure the quality of the disclosure. It is expected that the factorsassociated with the level of the disclosure also influence the value relevance of the intellectual capital disclosure. This thesis is based on a sample of 155 firms listed on the New Zealand Exchange covering a total of 519 firm-years over the period between 1 January 2008 and 31 August 2011. A self-developed disclosure index and multiple regression analysis are employed to test the hypothesised relationships. Overall, the results indicate that the average level of intellectual capital disclosed by New Zealand listed firms is low and the human capital component is the most frequently disclosed intellectual capital component. The results provide strong evidence that board structure characteristics, including board size and independence, have a significant positive impact on the level of intellectual capital disclosure. There is strong evidence for a non-linear relationship between ownership concentration and the level of intellectual capital disclosure, which is robust to various types of intellectual capital (i.e. human, relational and structural capital). The results show marginal evidence that board gender diversity has a positive impact on the level of intellectual capital disclosure. In terms of the value relevance of intellectual capital disclosure, only board size has a positive impact on the value relevance of the intellectual capital disclosure. In the individual component analysis, board independence is found to have a significant positive impact on the value relevance of the human and relational capital disclosures. This thesis provides the most recent evidence on the influence of board structure and ownership concentration on the level and value relevance of intellectual capital disclosure in a less stringent regulatory environment of New Zealand. These findings have important implications to regulators, and assist information users in the interpretation of the voluntary intellectual capital disclosure.