Per Flöstrand and Niklas Ström
Research has called for increased relevance of business reporting. A step towards that goal is an increased disclosure of non‐financial information. At the present time…
Abstract
Purpose
Research has called for increased relevance of business reporting. A step towards that goal is an increased disclosure of non‐financial information. At the present time, non‐financial information is mostly provided on a voluntary basis.
Design/methodology/approach
Valuation relevance of non‐financial information is studied by examining the information content of 200 analyst reports written on a respective number of firms listed in the S&P 500 index, while simultaneously performing a disclosure study of non‐financial information by the same 200 firms in their annual reports.
Findings
We found the valuation relevance of non‐financial information to be related to the size of the target firm. Further, analysts’ use of non‐financial information is related to the level of non‐financial information in the 10‐k report of the target firm. Finally, analysts tend to rely more heavily on forward‐looking non‐financial information than on historical non‐financial information.
Practical implications
The findings in this paper have implications for policy makers, preparers of business reporting, and others having to make judgments on information usefulness.
Originality/value
This study looks at the valuation relevance of non‐financial information, as opposed to earlier studies that have judged the usefulness of non‐financial information by measuring its value relevance. Information is regarded to have valuation relevance if it is used by analysts in the valuation process. Hence, valuation relevance offers an alternative way of measuring information usefulness.
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The objective of this paper is to examine the use of indicators of intellectual capital (IC) by financial analysts employed by brokerage firms, so‐called “sell‐side analysts”, and…
Abstract
Purpose
The objective of this paper is to examine the use of indicators of intellectual capital (IC) by financial analysts employed by brokerage firms, so‐called “sell‐side analysts”, and based on the findings draw conclusions on the perceived usefulness of different categories of indicators.
Design/methodology/approach
The basis for the paper is a content analysis of 250 sell‐side financial analyst reports written on a respective number of randomly selected S&P 500 companies. The study describes the use of IC information as leading indicators of future performance and identifies the contextual factors related to the use of such indicators.
Findings
The results reveal frequent use of IC indicators in analyst reports. Statistical analysis of the results indicates industry to be a contextual factor that is significantly related to the number of indicators used. Moreover, a majority of the IC indicators refer to relational capital, whereas indicators on human and structural capital are less frequent.
Originality/value
Information on the use of IC indicators is relevant to companies in their information disclosure process. Furthermore, understanding the behavior of users of financial information facilitates the work of standard setters.
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Andrew Flostrand, Leyland Pitt and Jan Kietzmann
Fake news is presently one of the most discussed phenomena in politics, social life and the world of business. This paper aims to report the aggregated opinions of 42 brand…
Abstract
Purpose
Fake news is presently one of the most discussed phenomena in politics, social life and the world of business. This paper aims to report the aggregated opinions of 42 brand management academics on the level of threat to, the involvement of, and the available actions of brand managers resulting from fake news.
Design/methodology/approach
A Delphi study of 42 academics with peer-reviewed publications in the brand management domain.
Findings
The study found that on some dimensions (e.g. the culpability of brand managers for incentivizing fake news by sponsoring its sources), expert opinion varied greatly. Other dimensions (e.g. whether the impact of fake news on brand management is increasing) reached a high level of consensus. The general findings indicate that fake news is an increasing phenomenon. Service brands are most at risk, but brand management generally is need of improving or implementing, fake news mitigation strategies.
Research limitations/implications
Widely diverse opinions revealed the need for conclusive research on the questions of: whether brands suffer damage from sponsoring fake news, whether fake news production is supported by advertising and whether more extensive use of internet facilitated direct interactions with the public through crowdsourcing increased vulnerability.
Practical implications
Experts agreed that practitioners must become more adept with contemporary tools such as fake news site blacklists, and much more aware of identifying and mitigating the brand vulnerabilities to fake news.
Social implications
A noteworthy breadth of expert opinion was revealed as to whether embellished or fabricated brand narratives can be read as fake news, inviting the question as to whether brands now be held to higher standards of communication integrity.
Originality/value
This paper provides a broad-shallow exploratory overview of the professional opinions of a large international panel of brand management academics on how the recent arrival of industrial fake news does, and will, impact this field.
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Subhash Abhayawansa and James Guthrie
This paper aims to understand the potential usefulness of sell-side analysts’ investment recommendation reports as a medium for communicating intellectual capital (IC…
Abstract
Purpose
This paper aims to understand the potential usefulness of sell-side analysts’ investment recommendation reports as a medium for communicating intellectual capital (IC) information. It explores the manner in which analyst reports supply IC information and the types of companies in relation to which analyst reports supply most IC information.
Design/methodology/approach
A content analysis of 64 initiating coverage analyst reports written on Australian companies is performed. The content analysis focuses on three semantic properties of IC disclosures: format (i.e. discursive, numerical-non-monetary, numerical-monetary and visual), news-tenor (i.e. positive, neutral and negative) and time-orientation (i.e. forward-looking, non-time-specific and past-oriented). The paper investigates whether analyst reports contain more IC information on companies providing less IC information through their own channels. For this, the authors test the hypothesised relationship between the extent of IC information and the IC intensity of the analysed company’s sector and the systematic risk of the company.
Findings
IC information in analyst reports is more discursive than numerical, not significantly more forward-looking in general and balanced between negative or neutral and positive attributions (except for information on company management). However, compared to the semantic properties of corporate reporting media, analyst reports in this study communicate IC information in a manner arguably more useful to investors. A company’s systematic risk and sector in which the company operates are associated with the extent of IC information in analyst reports. The findings indicate that analysts’ contribution as an IC information provider is greatest for companies providing less IC information directly to the public.
Practical implications
The results have implications for policymakers contemplating reforming non-financial reporting regulation and ensuring a level playing field for investors and companies when determining corporate IC disclosure strategy and strategies for investor relations.
Originality/value
This is the first study to explore semantic properties and drivers of IC information in analysts’ initiating coverage reports. This paper highlights the importance of analyst reports as a medium for communicating IC information that could complement corporate communication media.
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Subhash Abhayawansa and James Guthrie
The purpose of this paper is to review and synthesise current knowledge on the importance of intellectual capital (IC) information to the capital market.
Abstract
Purpose
The purpose of this paper is to review and synthesise current knowledge on the importance of intellectual capital (IC) information to the capital market.
Design/methodology/approach
The paper is by way of literature review. It reviews the empirical research literature from different methodological strands and synthesises the findings to provide evidence on the impact/importance/usefulness of IC from a capital markets perspective.
Findings
Importance of IC information has been examined using various research methods including capital markets research, questionnaire surveys, face‐to‐face interviews, experimentations, verbal protocol analysis and content analysis of analyst reports. These studies provide evidence on the usefulness/importance of many types of IC information. Also, evidence from IC disclosure studies on initial public offering prospectuses sheds light on perceived importance of types of IC information to the capital market. However, there is a scope for more research to refine the current understanding of the importance of IC to the capital market.
Practical implications
By reviewing and synthesising the literature, this paper provides an important source of reference for future researchers and policy makers who wish to formulate guidelines for IC reporting to better meet the information needs of capital market actors. It also highlights future research directions.
Originality/value
This is the first‐published literature review on the importance of IC that provides a comprehensive review of studies adopting various research methods. Prior reviews have been limited to value‐relevance and/or predictive ability studies.
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Subhash Abhayawansa and Indra Abeysekera
Although the importance of human capital (HC) in firm value creation is firmly established in the literature, the level of emphasis placed on human capital disclosure (HCD) by…
Abstract
Purpose
Although the importance of human capital (HC) in firm value creation is firmly established in the literature, the level of emphasis placed on human capital disclosure (HCD) by preparers of financial statements and sell‐side analysts is minimal. The purpose of this paper is to address this dilemma by critically analysing the conceptualisation of HC in disclosure literature and introduce a more suitable explanation.
Design/methodology/approach
The paper begins by reviewing the literature on intellectual capital disclosure (ICD) to examine the level of HCD in various company media and the use of such information by the capital market. It then critically analyses the conceptualisation of HC in those studies with a view to forming an opinion about the adequacy of that conceptualisation. Then the resource‐based view is justified as providing a more appropriate conceptualisation of HC to meet demands of the capital market.
Findings
Substantial ICD literature conceptualises HC using HC theory as a collection of knowledge and competences possessed by employees individually and collectively in firms. This has resulted in HC disclosure scores being considerably low compared to external and internal capital disclosure and does not portray HC in a way that is useful to the capital market. A resource‐based perspective enables HC to be depicted in a way that closely resembles the value creation potential of firms' employees.
Practical implications
Guidance is provided for future HCD and ICD studies to operationalise HC and to reflect its value creation potential by encompassing not only the firm specific stock of knowledge and capabilities of employees, but also the strategic HC management practices. Thus the corporate culture and the idiosyncratic systems and practices of the firm which are in place are enabled in to reaping the benefits of these.
Originality/value
ICD literature portrays HC as the least important intellectual capital subcategory. However, anecdotal evidence suggests otherwise. This study is the first attempt to clarify and provide an explanation to this dilemma.
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Birol Yıldız and Şafak Ağdeniz
Purpose: The main aim of the study is to provide a tool for non-financial information in decision-making. We analysed the non-financial data in the annual reports in order to show…
Abstract
Purpose: The main aim of the study is to provide a tool for non-financial information in decision-making. We analysed the non-financial data in the annual reports in order to show the usage of this information in financial decision processes.
Need for the Study: Main financial reports such as balance sheets and income statements can be analysed by statistical methods. However, an expanded financial reporting framework needs new analysing methods due to unstructured and big data. The study offers a solution to the analysis problem that comes with non-financial reporting, which is an essential communication tool in corporate reporting.
Methodology: Text mining analysis of annual reports is conducted using software named R. To simplify the problem, we try to predict the companies’ corporate governance qualifications using text mining. K Nearest Neighbor, Naive Bayes and Decision Tree machine learning algorithms were used.
Findings: Our analysis illustrates that K Nearest Neighbor has classified the highest number of correct classifications by 85%, compared to 50% for the random walk. The empirical evidence suggests that text mining can be used by all stakeholders as a financial analysis method.
Practical Implications: Combining financial statement analyses with financial reporting analyses will decrease the information asymmetry between the company and stakeholders. So stakeholders can make more accurate decisions. Analysis of non-financial data with text mining will provide a decisive competitive advantage, especially for investors to make the right decisions. This method will lead to allocating scarce resources more effectively. Another contribution of the study is that stakeholders can predict the corporate governance qualification of the company from the annual reports even if it does not include in the Corporate Governance Index (CGI).
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The purpose of this paper is to describe a methodology that enables the generation of valid and reliable inferences on what and how intellectual capital (IC) information is…
Abstract
Purpose
The purpose of this paper is to describe a methodology that enables the generation of valid and reliable inferences on what and how intellectual capital (IC) information is communicated by sell‐side analysts in their research reports.
Design/methodology/approach
The method described in this paper involves content‐analysing initiating coverage analyst reports using a four‐dimensional IC coding framework and a detailed coding instrument, which is founded in the literature and indigenous to analyst reports. The paper explicates methodological decisions associated with content analysis: selecting the appropriate sampling unit; recording unit and measurement unit; developing the categorisation scheme and coding instrument; the need for test coding; the approach to data collection; and assessment of reliability and validity.
Findings
The methodology described is applied to a sample of analyst reports to illustrate inferences that can be drawn on what and how IC information is communicated in analyst reports.
Practical implications
Various practical issues arising in the application of content analysis method are discussed and a methodology for investigating IC communications by sell‐side analysts is described in this paper. This knowledge can be useful to future researchers conducting content‐analytic studies involving analyst reports in general, and IC communications in analyst reports in particular.
Originality/value
This paper extends the methodology developed previously to examine IC information in analyst reports. Although inspired and heavily influenced by these works, the methodology presented in this paper differs from theirs on several fronts. The paper introduces an alternative methodological paradigm to the study of analyst reports by emphasising them as a communication medium through which sell‐side analysts may pursue an agenda of their own. This is contrasted with the view held by several prior researchers that analyst reports just provide a record of analysts' thought processes.