The effect of corporate governance on the Intellectual Capital disclosure : evidence from Jordan

As the modern economy becomes more and more reliant on Intellectual Capital (IC), so businesses assets structure dramatically changes towards intangible assets. This has built the appetite for researchers to examine IC from different angles. Some have examined the concept and the components of IC, some have examined the measurements of IC while others have examined the effect of IC on the performance. This study offers a genuine contribution to the literature as it departs from the main stream of prior research’s concentration on the concept and the measurements of IC; instead it focuses on examining the relationship between Corporate Governance (CG) and ICD quantity and quality. Also, this study contributes to the literature by offering evidences based on data form a brand-new research context: a geographical area that has been previously neglected by the research community. The data relating to IC has been captured through a disclosure index. The index is adopted from prior studies after being customised to take into consideration the specific feature of Jordanian economy and the social, cultural, and political climate. Also, the disclosure index has been developed to allow the researcher to measure ICD quality. The data been collected from corporate annual reports which pertain to 100 listed in the Amman stocks exchange (ASE) which account for 75% of the total market capitalisation. Descriptive statistics and panel regression models are used to analyse the collected data. In addition, semi-structured interviews have been conducted to validate the results of the regression model and to provide a more insightful explanation of ICD in Jordan. This study provides a comprehensive picture of the ICD patterns in Jordan. And, it provides a detailed explanation of the relationship between the CG and the level and quality of IC information shared by Jordanian companies through their annual reports. This study reveals that not all IC items are of the same importance to Jordanian companies: focus seems to be on structural capital among the IC sub-capitals and within the structural capital, the focus was on the corporate strategy and IT systems. Meanwhile, the effect of CG mechanisms varies on ICD. There is a significant positive effect found for foreign ownership, institutional ownership, audit committee characteristics and having a CG committee within the board on the ICD levels or quantity of the information while the family ownership found to be negatively affect the ICD. Moreover, institutional ownership, audit committee size and independence were all found to significantly affecting the variance of the ICD quality. The present study has provided significant empirical evidences that will help in generating additional improvement of the state of knowledge in relation to IC disclosure and the effect of the CG on the level of transparency and the quality of information both empirically and methodologically. It provides information users, preparers, regulatory bodies as well as academics with a state-of-the-art understanding of IC disclosure practices in the annual report.