Determinants of Intellectual Capital Disclosure: Evidence from Indian Banking Sector

(ProQuest: . denotes formulae omitted.)INTRODUCTIONIn a continuously changing environment, the competitiveness of each firm has become the key to its survival. A firm creates competitive advantage in this knowledge based world through its employees, customers, processes, infrastructure, information systems, innovativeness and such other assets called intellectual assets. As a result, research interest in the area of Intellectual Capital (IC) is growing. As observed by Abeysekara (2006), management has shifted its focus from tangible to intangible capital while deliberating over the processes that create value in the firm. This displays the growing importance of IC within. Value creation is considered to be a process which transforms or improves the routine practices of the corporate (Mouritsen, Larsen and Bukh, 2001; and Abeysekara, 2006). The traditional model of financial statements which is based on the historical cost concept, concentrates primarily on the materiality concept and the effects of financial transactions, ignoring certain important factors which determine the value of an enterprise. These factors may include intellectual capital, capacity of the enterprise to create future value. This results in a gap between the balance sheet value of the enterprise and the value estimated by the capital market (Helin, 2001). As claimed by Abeysekera (2008) "disclosure of IC in annual reports helps to make capital markets more efficient by reducing information asymmetry between 'insiders' and investors". Shareholder value and market value of an organization is enhanced by more IC disclosure in the annual reports of companies, to the capital markets (Abdolmohammadi, 2005). Banking industry being truly representative of knowledge based industry where value creation is mainly through intangible assets and resources have therefore been taken for study. This paper focuses on the extent of Intellectual Capital Disclosure (ICD) and the factors influencing ICD in the Indian banking industry. As far as awareness is, this research study is the first attempt of research in the field of intellectual capital disclosures in the Indian Banking sector. The objectives of this study are:* To study the extent of ICD in Indian banking sector. * To study if there any relationship exists between the ICD and bank size, bank risks, efficiency, bank age, human capital pressure, ownership pattern, leverage level, structural complexity and board composition.LITERATURE REVIEWIn recent times, there's been growth in research on ICD across developed and developing nations. These studies have frequently investigated the status of ICD in a particular country (usually cross-sectional). Examples comprise of Guthrie and Petty (2000) on Australia, Bontis (2003) on Canada, Abeysekera and Guthrie (2005) on Sri Lanka, Li, Pike and Haniffe (2008) on UK; and Yi and Davey (2010) on China. Studies with regard to a specific industrial sector have also been conducted. Such studies include White, Lee and Tower (2007) on bio-technology firms, Campbell and Rahman (2010) on a single company (Marks & Spencer), Cohen, Naoum and Vlismas, 2014) on the SME sector. It was observed by most researchers that disclosure level of firms across different countries was low and generally in qualitative form (Goh and Lim, 2004; Guthrie, Petty and Ricceri, 2006; and Whiting and Woodcock, 2011). Literature also shows that some studies were undertaken to compare ICD practices across different countries. These studies include studies undertaken by Vergauwen and Alem (2005) on France, Netherlands and Germany; Vandemaele, Vergauwen and Smits (2005) on Sweden, Netherlands and UK; Guthrie, Petty and Ricceri (2006) on Australia and Hong Kong; and Abeysekera (2008) on Singapore and SriLanka. This type of research resulted in a better understanding of ICD practices in an international context.Some researchers attempted to study the trend of ICD in a particular country or industry by undertaking a longitudinal research. …