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Sustainability reporting regime transition and the impact on intellectual capital reporting

Sustainability reporting regime transition and the impact on intellectual capital reporting To investigate, compare and document the magnitude and extent of intellectual capital disclosure to sustainability disclosure during a transition from a voluntary to mandated “comply or explain” sustainability reporting regime. And to empirically test if, during the regime transition period, changes in the magnitude (extent) of sustainability disclosure is a significant determinant of changes in the magnitude (extent) of intellectual capital disclosure.Design/methodology/approachContent analysis of 1,744 annual reports drawn from 436 Singapore listed firms spanning a four-year observation window (i.e. April 1, 2014 to March 31, 2018). The magnitude (number of sentences) and extent (number of items) of (1) intellectual capital disclosure measured using a 38-item index; (2) sustainability disclosure of a 105-item index; and (3) 15-item index to measure the magnitude and extent of joint sustainability/intellectual capital disclosure.FindingsThe average magnitude and extent of sustainability and the joint sustainability/intellectual capital disclosure increased whilst the average magnitude and extent of intellectual capital disclosure increased when regulatory discussion of a change to mandated sustainability reporting emerged. However, in the annual period the mandated sustainability reporting became effective while the average magnitude and extent of intellectual capital disclosure declined. Regression tests indicate a significant (insignificant) association between the change in the magnitude (extent) of sustainability disclosure and intellectual capital disclosure.Research limitations/implicationsFrom a research perspective, the analysis implies researchers investigating the consequences of mandated sustainability disclosure should consider impact on alternative non-financial disclosure themes and develop theoretical frameworks to derive why and how management may shift non-financial reporting strategies and practices.Practical implicationsFor regulators, findings suggest there may be a need to weigh spillover costs of reductions in transparency related to intellectual capital. For investors, declines in the magnitude and extent of intellectual capital disclosure following a transition to mandated sustainability reporting may limit future firm valuation particularly of heavy intangible asset-oriented firms.Originality/valueInitial study empirically investigating the impact of the transition from a voluntary to mandated sustainability reporting regime on the magnitude and extent of intellectual capital disclosure. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Applied Accounting Research Emerald Publishing

Sustainability reporting regime transition and the impact on intellectual capital reporting

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References (150)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
0967-5426
DOI
10.1108/jaar-06-2021-0143
Publisher site
See Article on Publisher Site

Abstract

To investigate, compare and document the magnitude and extent of intellectual capital disclosure to sustainability disclosure during a transition from a voluntary to mandated “comply or explain” sustainability reporting regime. And to empirically test if, during the regime transition period, changes in the magnitude (extent) of sustainability disclosure is a significant determinant of changes in the magnitude (extent) of intellectual capital disclosure.Design/methodology/approachContent analysis of 1,744 annual reports drawn from 436 Singapore listed firms spanning a four-year observation window (i.e. April 1, 2014 to March 31, 2018). The magnitude (number of sentences) and extent (number of items) of (1) intellectual capital disclosure measured using a 38-item index; (2) sustainability disclosure of a 105-item index; and (3) 15-item index to measure the magnitude and extent of joint sustainability/intellectual capital disclosure.FindingsThe average magnitude and extent of sustainability and the joint sustainability/intellectual capital disclosure increased whilst the average magnitude and extent of intellectual capital disclosure increased when regulatory discussion of a change to mandated sustainability reporting emerged. However, in the annual period the mandated sustainability reporting became effective while the average magnitude and extent of intellectual capital disclosure declined. Regression tests indicate a significant (insignificant) association between the change in the magnitude (extent) of sustainability disclosure and intellectual capital disclosure.Research limitations/implicationsFrom a research perspective, the analysis implies researchers investigating the consequences of mandated sustainability disclosure should consider impact on alternative non-financial disclosure themes and develop theoretical frameworks to derive why and how management may shift non-financial reporting strategies and practices.Practical implicationsFor regulators, findings suggest there may be a need to weigh spillover costs of reductions in transparency related to intellectual capital. For investors, declines in the magnitude and extent of intellectual capital disclosure following a transition to mandated sustainability reporting may limit future firm valuation particularly of heavy intangible asset-oriented firms.Originality/valueInitial study empirically investigating the impact of the transition from a voluntary to mandated sustainability reporting regime on the magnitude and extent of intellectual capital disclosure.

Journal

Journal of Applied Accounting Research – Emerald Publishing

Published: May 4, 2023

Keywords: Intellectual capital disclosure; Sustainability disclosure; Voluntary reporting; Mandated reporting; Disclosure regime transition

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