Intellectual Capital Disclosures: Does Social Media Make A Difference? Evidence from Australia and Indonesia

Intellectual capital (IC, hereafter) an intangible asset in accounting, is a combination of (i) internal capital eg corporate culture) (ii) external capital eg customer satisfaction) and (iii) human capital (eg education of employees) Due to its distinctive nature, IC does not meet the asset recogniton rule under AASB 138 Intangible Assets. Researchers in the past have used annual reports to analyse these voluntary disclosures. More recently, company websites have also been used to analyse IC disclosures. In the light of the growing use of social media worldwide (especially the Facebook) this study attempts to ascertain whether there is a difference between what is being disclosed in the annual report and on the Facebook page of the sample companies. Using data extracted from ASX 200 and IDX for 2013, the study finds that Facebook is widely used for IC disclosures relating to external capital while human capital is the most disclosed item in the annual report. The overall findings are consistent between Australia and Indonesia, with differences being identified in the sub categories of IC. Findings of this study have implications for communication initiatives for both the preparers (ie companies) and stakeholders.  It is a notable feature of accounting that market capitalisation of a company may be greater than the net asset value shown in the annual repmt of that company (Loftus, Leo, Picker, Wise, Clark, 2013) The reasons for this lie in the failure by accounting processes to recognise some items that the capital market considers to be of value. These items include human capital such as employees, education and training; external capital such as brands, customers and distribution channels; and internal capital such as intellectual property, information systems and corporate cultm*e. This means that a significant portion of value will be unrecognised and hence excluded from formal reporting disclosures. Intellectual capital (IC, hereafter) refers to the resource base of an organisation that forms the foundation of its competitiveness, growth and increasing wealth. The traditional approach to IC has been to only incorporate those elements recognised in financial statements. These are limited by identification, recognition and measurement problems, specifically internally generated intangibles. Under IAS 38 Intangible Assets, internally generated intangibles including internally generated brands, mastheads, publishing titles, customer lists and research costs cannot be recognised. Consequently, IC disclosures are voluntary. It appears that although much IC may not meet the definition for inclusion as an intangible asset in the financial statements, it would be viewed by stakeholders as enhancing a company's reputation, sustaining its competitive advantage, and creating company value (Briiggen, Vergauwen, Dao, 2009) IC is therefore relevant to the continuous disclosures made to stakeholders by companies. Since annual reports have been considered as the primary tool for companies to communicate with stakeholders (Guthrie, Ward, Cuganesan, 2008) researchers traditionally use them to analyse IC disclosures (Abeysekera Guthrie, 2005; Bellora Guenther, 2013; Branco, Delgado, Sousa,  2011; Guthrie Petty, 2000a; Guthrie, Petty, Ricceri, 2006; Mouritsen, Larsen, Bukh, 2001) However, with the advent of internet, more recent studies have also used the website of their sample companies to analyse IC disclosures (Guthrie et al. 2008; Orens, Aerts, Lybaert, 2009; Striukova, Unerman, Guthrie, 2008) The use of internet potentially overcomes issues associated with the annual report (e.g. its timeliness and backward looking nature) However, due to internet's dynamic nature, information provided at the company websites is only accurate at a particular point in time. Consequently, more recent researchers (see, for example, Chua and Bane1jee, 2013) have urged companies to use other fonns of social media (including Facebook, Twitter, and Linkedin) to provide a two way communication with their stakeholders in a timely manner. While marketing researchers see the value of social media and have conducted numerous related studies (see, for example, Chua IOO Academy of Taiwan Business Management Review and Banetjee, 2013; Culnan, McHuge and Zubillaga, 2010) accounting researchers have been relatively slow in embracing this concel?t until more recently. For example, Blankespoor, Miller, and White (2014) examine the impact ofusmg Twitter on the reduction of information asymmetry. They find that Twitter plays a positive role in disseminating a companies news. Alexander and Gentry (20 14) also suggest that social media could be used to report financial results. Both Blankespoor et a! (2014) and Alexander and Gentry (2014) contend that social media could be used to complement traditional dissemination channels (such as the annual report) Among the various forms of social media, Facebook is a communication channel that is yet to receive much attention from accounting researchers. However, according to a recent news report (the Australian Financial Review, 5 November 2015) Facebook has the largest number of users worldwide 1.6 billion people as compared to 320 million in Twitter. In the Asia Pacific region Go Globe (2015) lists the top 10 countries Facebook penetration (based on percentage of Facebook users) as shown in Table 1 below: Table 1. Face book penetration in the Asia Pacific region Country Percentage I Indonesia 96% 2 Vietnam 94% 3 Malaysia 94% 4 Phillipines 94% 5 Thailand 93% 6 India 93% 7 Hong Kong 93% 8 Taiwan 91% 9 Singapore 91% I 0 Australia 78% Motivated by Blankespoor et al's (2014) recent study and in response to Alexander and Gentry's (2014) suggestion of using social media to disclose fmancial performance, this paper attempts to provide some empirical evidence on how companies use their Facebook to communicate IC information. The justification for selecting Facebook as the social media for study is bassed on its popularity. As Twitter has a 149 character message restriction for every tweet and only the most recent 3,200 tweets can be displayed, it is thought that companies are more likely to use Facebook to communicate IC information with their stakeholders. The countries selected for study are Australia (IO'h position in the Go Globe, 2015 ranking) and Indonesia (1st position in the Go Globe, 2015 ranking) Both countries adopt International Accounting Reporting Standards and are in the Asia Pacific region. Similarly to previous studies where annual reports are used to analyse IC disclosure, the present research also includes this type of communication tool. It would be interesting to ascertain what types of IC disclosures are currently being made in the annual report (assurance required from external auditors) and Facebook (a less formal commmnnication tool with no assurance needed) to better understand the how IC information is disseminated. The present study uses data extracted from companies listed on the Australian Securities Exchange (ASX) and their counterparts listed on the Indonesia Stock Exchange (IDX) for the year 2013. In this exploratory research study, we use a form oriented content analysis (which involves a keyword count) to analyse IC information disclosed in the annual report and Facebook pages of the sample companies. The study fmds that Facebook is widely used for IC disclosures relating to external capital, whereas the annual repmt disclosures relate to human capital. These overall findings are consistent across these two countries with differences being noted in sub categories. The paper contributes to existing IC disclosure literature and provides empirical evidence on how companies in Australia and Indonesia use Facebook to disclose IC information to their stakeholders. An mcreased understanding ofiC disclosure, both within the annual report and Facebook, should encourage greater debate over IC reporting, which is predominately voluntary at present. Use of social media, such as Facebook, provides opportunities as well as challenges to companies. There are some implications for managing stakeholder relations communication initiatives. This remainder of the paper is organised as follows. Section 2 outlines the definition of IC. Literature review of previous research in IC disclosure and social media are provided in Section 3. The data selection and research design are pesented Section 4. This is followed by an analysis of the results in Section 5. Section 6 draws some concluding remarks. DEFINITION OF INTELLECTUAL CAPITAL IC can be broadly defined as th~ intellectual or knowledge base of an organisation and !ts' claims to future benefits (Lev, 2001; Strmkova et al. 2008) Over the years, a number ofiC categones have been developed by various researchers, including: i. Internal structure, external structure and employee competence (Sveiby, 1997a, 1997b) Academy of Taiwan Business Management Review 101 ii. Financial, renewal and development, customer, process and human (Edvinsson, 1997) iii. Market assets, human assets, intellectual property right assets, infrastructure assets (Brooking, 1997) and iv. Human capital, business process capital, business renewal and development capital, customer relationship capital (Roos, Edvinsson, Roos, 1998) More recently, Guthrie, Petty, Yongvanich, and Ricceri (2004) developed a framework to analyse IC with three main catgories: internal capital, external capital and human capital. From this broad framework, they further identified 18 sub categories (see Table 2) Internal capital relates to capital created within the company by employees while external capital considers external relationships with customers and suppliers. Human capital comprises capital embedded in employees. Table 2. Intellectual capital framework developed by Guthrie et al. (2004) I Internal capital 1 Intellectual property 2 Managemen