Vikalpa373-51-72

8/13/2019 Vikalpa373-51-72

1/22

VIKALPA VOLUME 37 NO 3 JULY - SEPTEMBER 2012 51

R E S E A R C H

includes research articles thatfocus on the analysis and

resolution of managerial andacademic issues based on

analytical and empirical orcase research

ExecutiveSummary

Corporate Disclosure of Intangibles:A Comparative Study of Practicesamong Indian, US, and JapaneseCompanies

Ragini

KEY WORDS

Accounting

Financial Reporting

Intangible Assets

Disclosure Practices

Return on Assets (ROA)

Intellectual Property Rights(IPR)

Today, the methods which create value for companies have undergone a sea change.

In the new globalized economy, when companies have edge to edge competition,

the intangibles like strategies, brands, market leadership, management policies, etc.,

play a major role in creating value for a company. Very few intangibles are covered

under the mandatory rules and regulations of accounting all over the world. De-

spite these regulatory limitations, an increasing number of companies are voluntar-

ily opting to include information in their list of intangibles in the notes to their annual

accounts or as an appendix in a narrative form. The narrative reporting on intangi-

bles has not yet been regularized by various accounting authorities, but to have

competitive edge in the market, a number of companies are voluntarily disclosing

information on intangibles in their business review section along with the manda-

tory information on intangibles in the financial accounts.

This study examined and compared the various disclosure practices of intangibles

of the top one hundred Indian, US, and Japanese companies for a period of five

years, i.e., 2001-2005. The study examined the type and extent of information on

intangibles being disclosed by the companies with the help of a disclosure Index.

The index of disclosure of intangibles used in this paper consisted of an extensive

list of 180 items, including both mandatory as well as voluntary disclosure items.

This study reveals that the countries under study, i.e., India, US, and Japan, have

shown a significant improvement in their overall disclosure scores over the five year

period. The Japanese companies have shown the maximum improvement of 59 per

cent in the overall disclosure scores over five year period, followed by US (42 %) and

Indian companies (31%). Secondly, IPRS and goodwill and other intangibles group

showed maximum increase in five years by the sample companies of all the three

countries under study.

On the basis of the results, it can be suggested that Indian companies need to im-

prove their disclosure practices in the areas of strategy and competition and mar-

ket and customer. Secondly, the accounting authorities should endeavour to

regularize the narrative reporting on intangibles. A number of organizations are

working to improve disclosure of non-financial items. Some of them are Interna-

tional Accounting Standard Board (IASB), Financial Accounting Standard Board

(FASB), Organisation for Economic Cooperation and Development (OECD), and

European Commission (EC).

8/13/2019 Vikalpa373-51-72

2/22

52

Accounting is considered to be the language of

business. It has evolved and emerged in res-

ponse to the social and economic needs of the

society. As trade, commerce, and industry progressed,

many new dimensions have been added to the account-

ing discipline. During the pre-industrial age (i.e., before

1850), business firms being mostly proprietary, laidgreater emphasis on balance-sheet as the owner was

more interested in knowing his capital, i.e., assets mi-

nus liabilities. The financial statements were prepared

primarily to reveal the wealth earned by the proprietor

of the firm; as a result the quantum of disclosure was

very small. Growth of corporations, and emergence of

the separate entity concept, company form of organiza-

tion, large-scale production, and cut-throat competition

during industrial age (1850-1975), led to the develop-

ment of various new financial control systems such as

Return on Capital Employed (ROCE) and Return on In-vestment (ROI), in order to monitor efficient allocation

of financial and physical capital (Kaplan and Norton,

2000). As a result, the focus of accounting shifted from

just recording, classifying, summarizing, and interpret-

ing the results1to identifying, measuring, and commu-

nicating economic information to permit informed

judgments and decisions by users of the information2.

According to SFAC-I (1978), financial reporting should

provide information that is useful to present and poten-

tial investors and creditors and other users in making

rational investment, credit and similar decisions. Dur-

ing this age, the ways in which companies created value

were based upon the efficient use of physical resources

such as raw material and machinery; the only intangi-

ble assets recognized in financial statements were intel-

lectual property rights such as patents and trademarks

where a market value was established by a transaction,

and acquired items such as goodwill (OECD, 2006).

The emergence of the information age in the last decade

of twentieth century led business to compete in a chal-

lenging market place that is rapidly changing, and be-

coming complex, global, hyper-competitive, and

intensely customer-focused. The organizations re-

sponded to these pressures of information age in a

unique manner. The major responses included strategic

approach, customer focus and service orientation, con-

tinuous improvement, empowering employees and fos-

tering collaborative work, team-based structure and

business alliances, which are more of an intangible na-

ture (Turban, Rainer & Potter, 2000). Further, the growth

of service sector and information technology along with

the dramatic increase in the number and size of merg-

ers and acquisitions made accounting for goodwill and

other intangible assets such as brands, research and de-

velopment significant (Saudagaran, 2001).Thus, no

longer can companies gain sustainable competitive ad-

vantage by merely monitoring efficient allocation of tan-

gible resources like physical assets and excellent

management of financial assets and liabilities. As

Goldfinger (1997) suggests, the source of economic value

and wealth is no longer the production of material goods

but the creation and manipulation of intangible assets.

In the present scenario, the information moves so rap-

idly around the world that industrial secrets, technical

advantages, and managerial innovations can evaporate

with the speed of an electronic mail. This speed of change

and dispersion of information gave birth to knowledge-

based economy which is driven by increased workforce

mobility, growing complexity in business environments,

the need to reduce loss of intellectual assets from em-

ployee turnover, the need to operate at global level, in-

creasing shift from tactical to strategic approach, and

steady absorption of internet and wireless technology(Rao, 2003). As a result, the new source of wealth is not

material; it is information, knowledge applied to work

to create value. It is the human intelligence and intellec-

tual resources which are now any companys most valu-

able assets.

The increased role of intangibles can be well assessed

from the changing market-to-book value differences. A

study of S&P 500 companies reveals that since the mid-

1980s, there has been a large increase in the ratio of mar-

ket value to book value, albeit with very high volatility.At its peak in March 2000, the ratio was 7.5; at the end of

2005, it was 4.1, and it may still go down. However, even

if the ratio fell to 4 or even 3, it would be high enough to

confirm that an amount of value equal to between one-

half and two-thirds of corporate market values reflects

the value of intangible assets (Lev, 2003). Further, Lev

(2004; p.109) adds, intangible assets which include a

skilled workforce, patents and know-how, software,

strong customer relationships, brands, unique organi-

1 Accounting Terminology Bulletin No.1, Review and Resume, AICPA,1953, paragraph 9.

2 American Accounting Association, A Statement of Basic AccountingTheory, AAA,1966, p.1.

CORPORATE DISCLOSURE PRACTICES ON INTANGIBLES A COMPARATIVE STUDY ...

8/13/2019 Vikalpa373-51-72

3/22


zational designs and processes, and the like generate

most of corporate growth and shareholder value. They

account for well over half of the market capitalization

of public companies. They absorb a trillion dollars of

corporate investment funds every year. In fact, these

soft assets are what give todays companies their hard

competitive edge.

In the light of increasing importance of intangible assets

in todays economy, the traditional model of account-

ing, which so beautifully described the operations of

companies for a half millennium, is now failing to keep

up with the revolution taking place in business. Like the

organization chart, printed corporate brochure, and

employee handbook, corporate financial documents are

increasingly proving themselves too static and hide-

bound to keep up with the modern organization with

its fluid structure, strategic partnering, empoweredemployees, groupware, multimedia network marketing,

and vital reservoirs of human intellectual resources

(Edvinsson & Malone, 1997). Also, in the words of Egol,

Double entry book keeping derived accounting model

is transaction based, information captured is, for most

part, limited by whether an exchange has occurred.

Hence, the values created by successful strategic posi-

tioning, human capital development and organizational

innovation are not reflected in this model (Sisodia, 2001,

p.1).As a consequence, the traditional financial account-

ing model needs to be expanded to incorporate the valu-ation of a companys intangible assets along with

tangible assets, so as to enhance the usefulness of ac-

counting information. Indeed, amongst users of finan-

cial accounting information, there is a growing demand

for extensive corporate disclosures on intellectual capi-

tal matters. Taylor and Associates (1998), for example,

reported disclosure of intellectual capital information

ranked in the top ten information needs of users. But

financial reporting and accounting systems are not able

to deal with intangibles. According to Adrienne Baker,

Editor-in-chief of Investor Relationsmagazine, over half

of the information that investors want is not reported

on the balance-sheet. Left out are important items such

as growth opportunities, infrastructure, intellectual capi-

tal, network effects, workforce, and in-process research

and development. Also, Commissioner of SEC, Cynthia

A Glassman mentions that accounting standards

(known as GAAP-Generally Accepted Accounting Prin-

ciples) are less effective in providing relevant informa-

tion on intangible assets, such as technology rights, hu-

man capital and innovation. (Jarboe, 2005, p.2). Despite

these regulatory limitations, an increasing number of

companies are voluntarily opting to include informa-

tion on their intangibles in the notes to their annual ac-

counts or as an appendix thereto. Lang and Lundholm

(1993) and Tasker (1998) reveal in their studies that com-

panies with high level of intangibles emphasize volun-

tary disclosure. In yet another study undertaken by Kang

(2006), it has been found that emerging market compa-

nies engage in voluntary disclosure practices in order to

disseminate different varieties of mainly quantitative

intangible asset information to their global stakeholders.

But this disclosure on intangibles is on an unsystematic

basis and with great discrepancies between companies,

sectors, and countries as evidenced by PriceWaterhouse

Coopers (PWC) in its 2005 annual trends report. The

reason for this heterogeneity is the absence of concep-tual framework within the accounting academics. This

is being evidenced from different terms used for intan-

gibles in different studies. There is a widespread ten-

dency to use the terms intangibles, intellectual

capital or intellectual assets interchangeably. Some

will find differences between these terms, but they refer

to the same reality: a non-physical asset with a potential

stream of future benefits (OECD, 2006). Similarly,

Oliveras and Kasperskaya (2002) mention that an organi-

zations business knowledge can be called by a variety

of names, of which intellectual capital and intellectual

assets are the most common. Further, Lev (2001) uses

the terms intangible assets, knowledge assets, and in-

tellectual capital interchangeably, arguing that they dif-

fer only in their discipline of origin the accountants

intangible assets are knowledge assets for economists

and intellectual capital for managers and lawyers. How-

ever, in the present paper, the term intangibles has been

used.

This paper documents an investigation into the report-

ing practices for intangibles by the top Indian, US, and

Japanese companies with the objective of understand-

ing and comparing their disclosure practices over a pe-

riod of time. Secondly, the paper studies the influence

of industry type on the disclosure of intangibles, i.e.,

whether an intangible-intensive company discloses more

on intangibles than a non-intangible- intensive company.

Service companies and companies with R&D expendi-

ture are referred to as intangible-intensive companies.

8/13/2019 Vikalpa373-51-72

4/22

54

Thirdly, the paper studies the influence of firm attributes

organizational size, profitability, market-to-book value

ratio, leverage, and industry type on the disclosure lev-

els of the top Indian, US, and Japanese companies.

RESEARCH METHODOLOGY

Universe and Sample of the Study

The top Indian 500 companies ranked on the basis of

revenue in the Compendium of Top 500 Companies in In-

diaconstitute the universe of the Indian companies,

whereas the top 500 companies ranked on the basis of

revenue in the Fortune Global 500 Worlds Largest Corpo-

rationsconstitute the universe of the US and Japanese

companies.

First 100 most valuable companies of India in the Com-

pendium of Top 500 Companies in India, 100 US, and 60Japanese companies listed in the Fortune Global 500

Worlds Largest Corporations constitute the sample.

Banking, insurance, and financial companies have been

excluded from the purview of this paper because of dif-

ferent disclosure requirements.

Sources of Data Collection

Published annual reports of the companies happen to

be the primary source of data. Annual reports of the US

and Japanese companies were ordered through the

websites of the companies. Annual reports of the Indian

as well as some of the US and Japanese companies were

obtained after sending e-mail requests and registered

letters at their respective addresses. In all, 60 Indian, 65

US, and 42 Japanese companies were requested to send

their annual reports. However, in response to these re-

quests, 35 companies from India, 50 from US, and 30

from Japan made their annual reports available. The re-

maining annual reports were downloaded from the re-

spective websites of the companies. In all, 192 annual

reports were collected for the year 2005 (70 for Indiancompanies , 66 for US companies, and 56 for Japanese

companies), 177 for the year 2004 (63 for Indian compa-

nies , 61 for US companies, and 53 for Japanese compa-

nies), 162 for the year 2003 (52 for Indian companies, 57

for US companies, and 53 for Japanese companies), 148

for the year 2002 (45 for Indian companies, 53 for US

companies, and 50 for Japanese companies) and 137 for

the year 2001 (40 for Indian companies, 49 for US com-

panies, and 48 for Japanese companies).

Period of the Study

The corporate annual reports of the Indian, US, and Japa-

nese companies have been collected for the period 2001-

2005. The span of five year period provides a justifiable

chance to study and compare the changes in corporate

disclosure practices of the Indian as well as the US and

Japanese companies. Many new developments tookplace regarding intangibles during this period in all the

three countries under study. Regarding Indian scenario,

Accounting Standard - 26 (2002) on intangible assets was

issued in 2003. In the US, Statement of Financial Account-

ing Standard-142 (SFAS-142) on Goodwill and Other

Intangibles came into effect from 2001. Moreover, the

Financial Accounting Standards Board (FASB, 2001) and

the Securities Exchange Commission (SEC) had also

suggested certain changes in reporting system in the year

2004. Similarly, the Japanese Ministry of Trade and In-

dustry had also issued a reference guideline for intel-

lectual property information disclosure in January 2004

which might have affected the disclosure practices of

the Japanese companies. Many new developments re-

garding narrative reporting can also be noticed during

this period.

SCOPE OF THE STUDY

The scope of the study is limited to the disclosure in the

corporate annual reports. Knutson (1993) mentioned that

annual reports are typically the most important sourceof information for most analysts. In addition, Lang and

Lundholm (1993) found a high, positive correlation be-

tween annual report disclosure and disclosure in other

sources (such as press releases or regulatory filings).

Disclosure Index

A disclosure index is used to examine whether corpora-

tions engage in disclosure practices of a particular in-

formation in annual reports (Marston and Shrives, 1991).

Many researchers have utilized a disclosure index forexamining the disclosure practices for intangibles of se-

lected companies (Williams, 2001; Citron et al., 2005;

Bergamini and Zambon, 2005; Kang, 2006). The index of

disclosure on intangibles used in this paper consists of

an extensive list of 180 information items, applicable to

a wide range of users, which appear in an annual report

(See Appendix). The index includes both mandatory as

well as voluntary disclosure items. These 180 items have

been grouped into seven broad categories called param-


8/13/2019 Vikalpa373-51-72

5/22


eters or groups of the Index (Table 1).

Table 1: Classification of Disclosure Index Items

Broad Parameter/ Group No. of Items

A. Research and Development 20

B. Strategy and Competition 30

C. Market and Customer 36D. Human Resource 26

E. Intellectual Property Rights(IPRs), and 25Goodwill & other Intangibles

F. Corporate and Shareholder 18

G. Environment and Others 25

Total 180

Disclosure Index can be assigned either weighted or

unweighted scores. A lot of controversy exists on this

issue. A number of researchers have made use of the

weighted disclosure index where items have been as-signed weights according to either the importance or

the type of disclosure (Bergamini and Zambon, 2005;

Kang, 2006). On the other hand, Williams (2001) and

Citron, et al(2005) used unweighted index giving equal

importance to all the disclosure items. The argument

given by them is that annual reports are read by a wide

variety of users and each class of user will attach differ-

ent weights to an item. As a result, weighted index in-

volves the issue of subjectivity. Further, Robbins and

Austin (1986) found that using a weighted disclosure

index does not materially affect the results of possibledeterminants of disclosure. This view is also supported

by Cooke (1989) and Firth (1980).

This paper uses the unweighted index as the use of

unweighted dichotomous index reduces subjectivity

involved in determining the weights of each item

(Williams, 2001; Ahmed and Courtis, 1999; Courtis,

1986). The disclosure item is scored as one (1) if it is dis-

closed in the annual report or zero (0) if it is not dis-

closed in the annual report. Thus, the total disclosure

score in terms of number of items being disclosed is de-termined. This total disclosure score has been converted

in percentage terms by applying the following formula:

Total number of items appearingin the annual report

x 100Maximum number of items which should

appear in annual reports (180)

Dependent and Independent Variables

The paper attempts to establish a cause and effect rela-

tionship between dependent variable, viz., disclosure

score and independent variables, viz., organizational

size, profitability, leverage, market-to-book value, and

industry type.

(a) Organizational size:It has been measured in terms

of total sales and total assets.

(b) Profitability: It has been measured in terms of re-

turn on assets (ROA) and return on equity (ROE).

ROA is calculated as the ratio of net profit to total

assets and ROE is calculated as the ratio of net profit

to net worth or shareholders equity.

(c) Leverage:It has been measured as the ratio of long-

term debt to shareholders equity.

(d) Market value to Book value:It has been measured

as the ratio of market value to book value of the com-pany.

(e) Industry type:It has been measured in terms of the

amount of R&D expenditure disclosed in the annual

report. Taking it as controlled dichotomous variable,

coded as one (1) if the company discloses R&D ex-

penditure in annual report or zero (0), if otherwise.

Techniques of Data Analysis

The following statistical techniques have been used to

analyse the data relating to disclosure of intangibles col-lected from the Indian, US, and Japanese companies.

Descriptive Statistics

Descriptive statistics include the various measures of

central tendency, i.e., mean, range, and standard devia-

tion. Mean is a single value which is considered as the

most representative value for a given set of data. But

the average alone cannot adequately describe a set of

observations, unless all the observations are alike. As a

result, it is necessary to describe the variability of obser-

vations. Measures of variation help us in studying the

important characteristics of a distribution, i.e., the ex-

tent to which the observations vary from one another

and from some average value. Measures of variation

used in the study include range and standard deviation.

Range is defined as the difference between value of the

smallest observation and value of the largest observa-

tions included in the distribution. The most important

and widely used measure of studying variation is stand-

8/13/2019 Vikalpa373-51-72

6/22

56

ard deviation. A small standard deviation means a high

degree of uniformity of the observations as well as ho-

mogeneity of a series; and a large standard deviation

means just the opposite.

Univariate Statistics

Statistical techniques, which are appropriate for analys-ing data when there is a single measurement of each

element in the sample or if there are several measure-

ments on each element or each variable is analysed in

isolation, have been used. Both types of univariate tech-

niques parametric and non-parametric tests have

been used to analyse the data. For analysing the differ-

ences in the yearly disclosure scores, a paired t-test (a

parametric test) and Wilcoxon sign-rank test (a non-para-

metric test) have been used. Further, for analysing the

differences in the mean disclosure scores of the three

countries, Kruskal-Wallis test (a non-parametric) hasbeen used. Lastly, an independent sample t-test (a para-

metric test) has been used to analyse the mean differ-

ences of the data on the basis of Industry type.

Multivariate Statistics

Multivariate statistics is suitable for analysing the data

when there are two or more measurements on each ele-

ment and the variables are analysed simultaneously.

These techniques are concerned with the simultaneous

relationships among two or more independent variablesand a dependent variable.

In this paper, following regression model was formu-

lated to check the dependence of total (T)disclosure on

the company attributes (independent variables) dis-

cussed above.

T = a1+ b1x1 + b2x2 + b3x3- - - - - - - + bnxn

where,

a1

= Constants

b1-bn = Regression coefficients

x1 = Total sales

x2 = Total assets

x3 = ROA

x4 = ROE

x5 = Leverage

x6 = Market value to Book value

x7 = Industry type.

Multicollinearity is a serious problem which must be

considered before employing multiple regression analy-

sis. It arises when high level of correlation exists between

some of the independent variables. A formal method of

detecting multicollinearity is to check the collinearity

tolerance and variance inflation factor (VIF). VIF shows

how the variance of an estimator is inflated by the pres-

ence of multicollinearity and tolerance is the inverse of

VIF. Larger the value of VIF, the more troublesome or

collinear the variable, whereas smaller the value of the

tolerance, the more collinear the variable (Gujarati, 2004).

To check the problem of multicollinearity, every regres-

sion model was tested for the VIF values and tolerance

values of the variables and the results show that the co-

efficients of independent variables are quite below the

rule of thumb3. As a result, multicollinearity was not a

serious problem for any of the regression models.

ANALYSIS AND RESULTS

Descriptive Analysis

Overall Disclosure Practices on Intangibles

The results of descriptive statistics indicate that the

maximum disclosure has been made by the US compa-

nies during all the years of study except 2001 when the

Indian companies took the lead. The second position has

been earned by Indian companies during the entire pe-riod of study followed by Japanese companies except

2005 when the Japanese companies remained ahead of

the Indian companies in the disclosure practices (see

Table 2). Further, the results indicate a continuous up-

ward trend in the mean disclosure scores by all the sam-

ple companies of respective three countries included in

the study. The mean disclosure scores of the Indian sam-

ple companies showed an increase of 31 per cent in five

years. Each consecutive year showed a constant increase

as the disclosure score was 16.38 in 2001, 17.22 in 2002,

19.10 in 2003, 20.55 in 2004, and 21.47 in 2005. Similarly,

the mean disclosure scores of the US sample companies

increased from 16.01 in 2001 to 23.74 in 2005 showing an

increase of 42 per cent in five years. Each consecutive

year showed an increase in the disclosure scores but this

increase was not constant. A detailed analysis of the dis-

3 As a rule of thumb, if the VIF of a variable exceeds 10, then it is saidto be highly collinear (Gujarati, 2004).


8/13/2019 Vikalpa373-51-72

7/22


closure scores reveal that maximum increase has taken

place in the year 2002, i.e., 18.55 per cent while the re-

maining years, i.e., 2003, 2004, and 2005 show a minor

increase of 4.12 per cent and 5.77 per cent respectively.

On the same lines, Japanese sample companies too

showed a continuous upward trend in its disclosure

scores. The mean disclosure scores increased from 14.05

in 2001 to 22.38 in 2005 showing an increase of 59.30 per

cent in five years. Each consecutive year showed a con-

stant increase.

Though the maximum disclosure on intangibles was by

the US companies, the maximum increase over the study

period was shown by the Japanese companies. The pic-

ture becomes clearer from the graph in Figure 1.

Group-wise Disclosure on Intangibles

It is clear from the above discussion, that the overallmean disclosure scores of all the three countries indi-

cate a continuous upward trend over the study period.

Group-wise analysis helps in answering as to which type

of information on intangibles is increasing in a particu-

lar country over time. The study of the descriptive re-

sults reveals that the Indian companies disclosed more

information on research & development, and human

resource than the companies from US and Japan as the

mean disclosure scores of Indian companies have been

greater during the period of study. However, the US

companies disclosed more information on strategy and

competition, market and customer, and IPRs and

goodwill and other intangibles than the Indian and Japa-

nese companies. Japanese companies disclosed more on

corporate and shareholder, and environment and oth-

ers (Table 2). Further, on analysing the descriptive re-

sults of the Indian sample companies, it was found that

the mean disclosure scores of all the groups showed a

continuous upward trend. Research & development

group mean disclosure score showed an increase of 18.60

per cent in five years. Similarly, strategy and competi-

tion mean disclosure score increased from 4.05 in 2001

to 5.47 in 2005 showing an increase of 35 per cent. Mar-

ket and customer group showed an increase of 18.15

per cent whereas corporate and shareholder group

showed an increase of 28.67 per cent. Maximum increase

of 183.46 per cent was shown by the IPRs and goodwill

and other intangibes group, whereas the minimum in-

crease of 15.84 per cent was shown by the human re-

source group. Yearly analysis of the mean disclosurescores on IPRs and goodwill and other intangibles

group by the Indian sample companies reveal that the

major shift has taken place in the year 2004. The mean

disclosure score of the same has been doubled in a sin-

gle year as it increased to 3.30 in 2004 from just 1.65 in

2003. This increase can be attributed to the introduction

of Accounting Standard 26 on intangibles in 2003 which

was applicable from the year 2004. In case of the US sam-

ple companies, a five-year change showed a continuous

increase in the mean disclosure scores of all the groups.

Research and development mean disclosure score

showed an increase of 73 per cent. Strategy and compe-

Figure 1: Mean Disclosure Scores of the Indian, US, and Japanese Companies

8/13/2019 Vikalpa373-51-72

8/22

58

tition mean disclosure score increased from 4.84 in 2001

to 7.27 in 2005 showing an increase of 50 per cent. Mar-

ket and customer mean disclosure score increased by

27.56 per cent. Mean disclosure of human resource in-

creased by 11.57 per cent. Maximum increase of 74.27

per cent was shown by the mean disclosure scores on

IPRs and goodwill and other intangibles, whereas the

minimum increase of 10.36 per cent was shown by cor-

porate and shareholders mean disclosure scores. Maxi-

mum increase in the disclosure scores on IPRs and

goodwill and other intangibles was noticed in 2002

when the score moved from 4.78 in 2001 to 7.19 indicat-

ing that companies responded well to the SFAS-142 on

goodwill and other intangibles.In case of the Japanese

sample companies, a five-year change showed a con-

tinuous increase in the mean disclosure scores of all the

groups 58.24 per cent for research and development,

88 per cent for strategy and competition (from 4.13 in2001 to 7.76 in 2005), 30.53 per cent for market and cus-

tomer, and 37.79 per cent for corporate and sharehold-

ers group. The maximum increase of 221.79 per cent

was found in IPRs and goodwill and other intangibles,

whereas the minimum increase of 22.18 per cent was

found in human resource mean disclosure scores. The

mean disclosure scores increased steeply in the year 2003

which could also be the result of SFAS-142.

On the whole, items on IPRs and goodwill and other

intangibles group showed the maximum increase in fiveyears by the sample companies of all the three countries

under study. Though the Japanese sample companies

showed the maximum increase of 221.79 per cent dur-

ing this period, the maximum disclosure was by the US

sample companies in all the study years.

Major Items Disclosed by End of 2005

The major items disclosed by the sample companies of

the respective countries are presented in Tables 3 and 4.

The study of the Tables reveals that six items from re-

search and development group were disclosed by more

than 50 per cent of the Indian companies. The position

is different in the case of US and Japanese companies.No item from research and development group was

disclosed by more than 50 per cent of the US sample

companies whereas only one item namely R&D expendi-

ture was disclosed by 71.40 per cent of the Japanese com-

panies; 71.3 cent of the Indian companies disclosed

information on R&D strategy whereas 67.90 per cent of

the Japanese companies disclosed information on

growth strategy; 53 per cent of the US and 78.60 per cent

of the Japanese companies disclosed information on busi-

ness strategy. The other major difference noticed was

that only US companies disclosed information on itemsof competition 34.8 per cent and 40.9 per cent of the

US companies disclosed information on key competi-

tors and type of competition respectively. No such in-

formation was disclosed even by 25 per cent of the Indian

and Japanese sample companies. No information on cus-

tomers was disclosed by the three countries under study

except for the 27.3 per cent of the US companies which

disclosed information on major customers. Indian com-

panies overlap the US and Japanese companies in case

of the disclosure on human resource. The commonitems disclosed by the three countries included retire-

ment benefits, number of employees, and leadership

team. In addition to this, Indian companies disclosed

information on HRD activities, particulars of remunera-

tion, and benefits paid to key managerial personnel, in-

dustrial relations, information about executive officers,


Table 2: Comparison of the Mean Disclosure Scores of the Indian, US, and Japanese Companies

Item-wise/Year 2001 2002 2003 2004 2005

Country India US Japan India US Japan India US Japan India US Japan India US Japan

Overall Disclosure 16.37 16.01 14.05 17.22 18.98 14.30 19.10 20.65 17.92 20.55 21.50 20.32 21.47 22.74 22.38

Research & Development 5.70 1.73 2.85 5.58 2.13 3.18 6.08 2.56 3.77 6.67 2.49 4.11 6.76 3.00 4.51

Strategy & Competition 4.05 4.84 4.13 4.76 5.02 3.84 5.37 5.74 4.94 5.73 6.90 6.40 5.47 7.27 7.76

Market & Customer 3.25 5.37 3.44 2.62 5.72 3.04 3.50 6.00 3.62 3.86 6.31 4.80 3.84 6.85 4.49

Human Resource 5.62 3.63 2.75 5.91 4.11 2.70 6.44 3.91 2.85 6.11 4.13 3.23 6.51 4.05 3.36

IPRs & Goodwill and 1.33 4.78 1.56 1.36 7.19 1.62 1.65 7.88 3.85 3.30 7.41 4.08 3.77 8.33 5.02Other Intangibles

Corporate & Shareholder 4.43 2.80 4.79 5.33 3.38 5.16 5.58 3.65 5.81 5.65 3.62 6.60 5.70 3.09 6.60

Environment & Others 5.10 5.67 5.77 5.44 6.62 6.20 5.77 7.44 7.42 5.97 7.84 8.09 6.59 8.35 8.51

8/13/2019 Vikalpa373-51-72

9/22


and training programmes. No information on intellec-

tual property rights was disclosed by 25 per cent of the

sample companies of the respective countries except 36.4

per cent of the US companies which disclosed informa-

tion on value of trademarks/tradenames. Sample com-

panies of all the three countries disclosed information

on goodwill and other intangibles. In case of disclo-

sure on goodwill and other intangibles, US companies

overlap the companies of other two countries. For ex-

ample, 84.80 per cent of the US companies disclosed

value of goodwill in their annual reports whereas only

44 per cent and 30 per cent of the Japanese and Indian

companies respectively disclosed the same. Japanese

companies took the lead in disclosing corporate infor-

mation. While 87 per cent of the Japanese companies

disclosed information on corporate data, 62.50 per cent

disclosed information on corporate profile. Annual re-

ports of the Indian companies stressed more on infor-mation related to shareholders 91 per cent of the Indian

companies disclosed information on share price data and

87 per cent disclosed shareholding distribution. A sin-

gle item, namely share price data, is disclosed by more

than 50 per cent of the US companies. More than 50 per

cent of the sample companies of these countries did not

disclose any information on environment.

Univariate Results

To Test the Change in Disclosure Scores over Years

Wilcoxon matched pair-sign rank test and paired t-test:

The Wilcoxon matched pair-sign rank test and the paired

t-test results of all sample companies from respective

countries indicated that the change in the overall mean

disclosure scores on intangibles between each consecu-

tive year is statistically significant (see Tables 5 and 6).

The change in the overall mean disclosure scores on in-

tangibles in the five-year period was also found to be

significant. This change in the overall disclosure scores

of all sample companies from respective countries can-not be attributed to a particular group or a particular

year. It could be different in different groups and in dif-

ferent countries. For example, Indian sample companies

showed significant change in the disclosure on research

and development and IPRs and goodwill and other

intangibles and environment and others in all the years

under study. Similarly, Japanese sample companies

showed significant change in the disclosure on strat-

egy and competition and market and customer in all

the consecutive years. The US sample companies did not

show significant change in any consecutive year under

study. Time of change in the disclosure also differed from

group to group and also country to country. For exam-

ple, disclosure scores of two groups namely research

and development and strategy and competition of all

sample companies from respective countries showed sig-

nificant change in the year 2003 whereas disclosure

scores of the group namely, IPRs and goodwill and other

intangibles showed significant change in the year 2005.

To conclude, it can be observed that over the years there

has been significant change in the overall disclosure

scores on intangibles of the sample companies from the

respective countries; but the areas of improvement also

differ among the three countries.

To Test the Difference in the Disclosure Scores of theThree Countries

Kruskal-Wallis Test: Kruskal-Wallis test was applied

to find whether there was any significant difference in

the overall disclosures scores of the three countries. Re-

sults indicate statistically significant differences in the

first three study years, i.e., 2001-2003, but no significant

difference in the years 2004 and 2005 (see Table 7).

The results for group-wise disclosure on intangibles in-

dicate significant differences among the Indian, US, and

Japanese companies on research and development,

market and customer, human resource, IPRs and

goodwill and other intangibles, and corporate and

shareholder disclosure scores for all the years. For strat-

egy and competition, no significant difference existed

during the first three years but for the next two years,

i.e., 2004 and 2005, significant differences were seen

among the companies from all the three countries. For

environment and others, significant differences were

noticed during the last three years, i.e., 2003-05.

To Test the Difference in Disclosure Scores of DifferentIndustries

Univariate analysis was also done to test the relation-

ship between the industry type and the level of disclo-

sure on intangibles to check whether intangibility of an

industry effects disclosure on intangibles. The follow-

ing two types of industry classification were tested with

the help of independent sample t-statistic:

8/13/2019 Vikalpa373-51-72

10/22

60

Service and Manufacturing Companies: According to

Zeithami, et al (2008), Intangibility is a key determi-

nant of whether an offering is a service. Although this is

true, it is also true that very few products are purely

intangible or totally tangible. Instead, services tend to

be more intangible than manufactured products, and

manufactured products tend to be more tangible than

services. Services are intangibles and as a result it is

often expected that the service companies will disclose

more information on intangibles than the manufactured

companies. Citron, et al (2005) examine whether intan-

gible-intensive firms make more intellectual capital dis-

closures than less intangible-intensive firms. Intangible-

intensive firms are measured by the presence of R&D

spending, membership of the service sector, and a greater

market-to-book ratio. The results indicate that greater

disclosures are made by the UK-based R&D active firms,

service sector firms, and those with higher market-to-book ratio.

The results of the Indian and Japanese companies indi-

cate higher mean disclosure scores for service compa-

nies than that of the manufacturing companies. The

difference between the disclosure scores of the service

and manufacturing companies of the respective coun-

tries was not significant. The scenario is opposite in case

of the US companies where mean disclosure scores of

the manufacturing companies were more than the serv-

ice companies and also the difference was significant.This implies that though a greater disclosure on intan-

gibles is made by the Indian and Japanese service com-

panies, the difference is not statistically significant

whereas in the case of US, greater disclosure on intangi-

bles is made by the manufacturing companies and the

difference is statistically significant.

Companies With and Without R&D Expenditure

As perHirschey (1993), spending on advertising and

R&D can be viewed as a form of investment in intangi-ble assets with predictably positive effects on future cash

flows. Further, as per Citron, et al(2005), The inherent

uncertainties associated with R&D expenditure make it

more likely that firms engaging in such activities will

seek to make additional disclosures to explain the na-

ture of these accounts. So, it is expected that the com-

panies with material R&D expenditure disclose more on

intangibles than the companies without R&D expendi-

ture.

The results indicate that the sample companies with

R&D expenditure of the respective countries disclose

more on intangibles. The Indian and US companies with

R&D expenditure have significantly more mean disclo-

sure on intangibles for all the study years. The Japanese

companies with R&D expenditure have more mean dis-

closure score for all the study years but the difference is

significant only for the first three years of study, i.e.,

2001-03.

Multivariate Analysis

Multivariate analysis discusses the association between

the selected company attributes and overall disclosure

scores over a period with the help of step-wise multiple

regressions. The results of step-wise regressions for five

years of the Indian companies reveal that industry type

is significantly associated with the disclosure scores of

the Indian companies during all the study years except

2001 (see Table 9). Organizational size is significantly

associated with the disclosure scores only in the year

2005, where assets are significantly associated with dis-

closure score on intangibles. Profitability of a company

in terms of ROA is highly associated with the disclosure

scores on intangibles in all the study years except in the

year 2005. Leverage and market-to-book value prices are

not significantly associated with the disclosure scores

on intangibles of the Indian companies. The explana-

tory power of the five regression models varies from ashigh as 52.3 per cent in 2003 to as low as 25.6 per cent in

2005. F-value is highly significant for all the five regres-

sion models. Overall, the Table reveals that industry type

and ROA are the two company attributes which are sig-

nificantly associated with the disclosure scores on in-

tangibles of the Indian companies.

The results of step-wise regression for the US compa-

nies reveal that industry type is significantly associated

with the overall disclosure scores of the US companies

(see Table 10). No other company attribute is found tobe significantly associated with overall disclosure scores

during any of the study years. The explanatory power

of the four models ranges from as high as 11.7 per cent

in 2004 to as low as 8.7 per cent in 2003. The F-ratio is

significant for all the five models at 95 per cent level of

significance.

The results of step-wise multiple regression for the Japa-

nese companies reveals that overall disclosure scores of


8/13/2019 Vikalpa373-51-72

11/22

8/13/2019 Vikalpa373-51-72

12/22

62

Table 3: Major Items Disclosed by More than 50% of the Sample Companies

India Per cent of US Per cent of Japan Per cent of Companies Companies Companies

Research & R&DResults/ 80.00 R&D 71.40Development Achievements Expenditure

R&D Focus Areas 78.57

Technology and Innovation 78.57

R&D Expenditure 75.71

Information on Accounting 68.57Treatment of R&DExpenditure

R&D Expenditure as 67.14% of sales

Strategy & Industry Trends/Environment 74.29 Liquidity Management 78.80 Business Strategy 78.60Competition R&D Strategy 71.43 Restructuring Activities 66.70 Growth Strategy 67.90

Risk Factors 64.29 Business Strategy 53.00 Restructuring Activities 51.80

Industry Trends/ 50.00Environment

Market & Market Risk 77.30 Geographic Division 82.10

Customer Major Products 68.20 Major Products 73.20

Geographic Division 54.50 Primary Markets 57.10

Human Particulars of Remuneration 88.57 Retirement Benefits 87.90 Retirement Benefits 100.00Resource and Benefits Paid to Key

Managerial Personnel

Retirement Benefits 82.86 No. of Employees 60.60 Leadership Team 91.10

Leadership Team 81.43 Leadership Team 60.60 No. of Employees 85.70

No. of Employees 65.71 Incentive Plans for 50.00Employees

Industrial Relations 54.29

Human Resource 50.00

Development ActivitiesIPRs & Value of Other 61.43 Value of Goodwill 84.80 Value of Other 58.90Goodwill Intangible Assets Intangible Assetsand Other Items included in 58.57 Accounting Treatment 78.80 Accounting Treatment 58.90Intangible Other Intangible Assets for Goodwill and Other for Goodwill and OtherAssets Intangible Assets Intangible Assets

Accounting Treatment 51.43 Value of Other 75.80 Amortization Method 55.40for Goodwill and Other Intangible Assets for Goodwill andIntangible Assets Other Intangible Assets

Details regarding 69.70 Amortization Method 51.80Impairment Test Criteria for Goodwill andfor Goodwill and Other Other Intangible AssetsIntangible Assets

Amortization Method 63.60for Goodwill andOther Intangible Assets

Items included in 62.10Other Intangible Assets

Amortization Period 62.10for Goodwill andOther Intangible Assets

Amortization Method 59.10for Goodwill andOther Intangible Assets


8/13/2019 Vikalpa373-51-72

13/22


India Per cent of US Per cent of Japan Per cent of Companies Companies Companies

Corporate & Share Price Data 91.43 Share Price Data 72.70 Corporate Data 87.50Shareholder Shareholding Distribution 87.14 No. of Shareholders 71.40

(Type of Shareholder)

Shareholding Distribution 85.71 Major Shareholders 71.40(No. of Shares Held)

Corporate Profile 62.50Share Price Data 58.90

Environment Corporate Governance 94.29 New Accounting 83.30 Lease 92.90& Others Standards

Related Party Transactions 84.29 Contingencies & 80.30 Contingencies & 91.10Commitments Commitments

Contingencies & 74.29 Contractual Obligations 77.30 Corporate Governance 87.50Commitments

Outlook/Future 71.43 Fair Value of Financial 68.20 Corporate Social 80.40Instruments Responsibility

Opportunities and 61.43 Off-balance-sheet 66.70 Subsequent Events 67.90Challenges Arrangements

Corporate Social 58.57 Hedging Activities 53.00 Hedging Activities 66.10Responsibility

Information on Awards 50.00 Lease 51.50 Outlook/Future 55.40

Table 4: Major Items Disclosed by More than 25% but Less than 50% of Sample Companies

Groups India Per cent of US Per cent of Japan Per cent of Companies Companies Companies

Research & Information related to 47.14 Technology and 45.5 Information on 48.2Development Software Cost Innovation Accounting Treatment

of R&D Expenditure

Information 37.14 R&D Expenditure 40.9 Information related to 42.9

Technology Initiatives Software CostTechnical Know-how 28.57 Information on 28.8 Technology and 39.3

Accounting Treatment Innovationof R&D Expenditure

R&D Activities 35.7

Growth Rate of R&D 26.8Expenditure

R&D Focus Areas 25.0

R&D Results/Achievements 25.0

R&D Expenditure as 25.0% of Sales

New Technologies 25.0

Strategy & Restructuring Activities 42.86 Risk Factors 45.5 Liquidity Management 48.2Competition Business Strategy 37.14 Type/Degree of Competition 40.9 Strategic Targets 44.6

Human Resource Strategy 30.00 Competitive Factors 40.9 Product Strategy 42.9

Strengths 28.57 Industry Trends/ 36.4 Regional Strategy 39.3Environment

Strategic Initiatives 27.14 Key Competitors 34.8 Risk Management 39.3

Strengths 33.3 Risk Factors 39.3

Growth Strategy 31.8 Global Strategy 37.5

Risk Management 25.8 Strengths 35.7

Marketing Strategy 26.8

8/13/2019 Vikalpa373-51-72

14/22

64

Groups India Per cent of US Per cent of Japan Per cent of Companies Companies Companies

Market & Marketing/Advertising Costs 48.57 Marketing/Advertising Costs 48.5 New Products 39.3Customer Major Products 44.29 New Products 34.8 Market Units/Stores 32.1

New Products 38.57 Market Units/Stores 31.8 Marketing/Advertising Costs 28.6

Geographic Division 38.57 Primary Markets 28.8

Information related to 31.43 Brand Names 28.8

Product QualityMajor/Significant customers 27.3

Human Information about 48.57Resource Executive Officers

Training Programmes 35.71

IPRs & Amortization Method 34.29Goodwill for Goodwill andand Other Other Intangible AssetsIntangible Amortization Period for 34.29 Carrying Value for 43.9 Value of Goodwill 44.6Assets Goodwill and Other Goodwill and Other

Intangible Assets Intangible Assets

Value of Goodwill 30.00 Value of Goodwill 37.9 Items included in Other 44.6

(segment-wise) Intangible AssetsAmortized Value for Goodwill 28.57 Value of Trademarks/ 36.4 Amortized Value for Goodwill 30.4and Other Intangible Assets Tradenames and Other Intangible Assets

Value of Acquired Goodwill 34.8 Value of Acquired Goodwill 28.6

Carrying Value for Goodwill 28.6and Other Intangible Assets

Details regarding Impairment 28.6Test Criteria for Goodwill andOther Intangible Assets

Corporate & Shareholder Complaints 47.14 Corporate 34.8 Shareholding Distribution 48.2Shareholder Accomplishments (Type of Shareholder)

No. of Shareholders 41.43 Corporate Structure 39.3

Corporate Data 38.57 Corporate Goals/Objectives 32.1Corporate Accomplishments 30.00 Corporate Vision 30.4

Corporate Vision 25.71 Corporate Philosophy 30.4

Corporate History 28.6

Corporate Accomplishments 25.0

Corporate Ethics/ 25.0Code of Conduct

Environment Lease 42.86 Outlook/Future 45.5 Environmental Activities 46.4& Others Environmental Initiatives 27.14 Environmental Matters 33.3 Fair Value of Financial 44.6

Instruments

Corporate Social 30.3 New Accounting 35.7Responsibility Standards

Subsequent Events 30.3

Source: Based on Annual Reports of the Indian, US, and Japanese companies


8/13/2019 Vikalpa373-51-72

15/22


Table 5: Results of Paired t-test

Overall Disclosure Research & Development Strategy & Competition Market & Customer

Pairs India US Japan India US Japan India US Japan India US Japan

2001-02 -2.65** -5.67* 0.130 -0.202 -1.18 -0.458 -2.42** -0.993 0.899 0.848 -0.772 1.711

2002-03 -4.29* -4.15* -7.466* -2.37** -2.15** -2.27** -2.80** -2.36** -3.674* -2.39** -1.11 -2.90**

2003-04 -4.81* -2.61** -7.493* -2.31** -0.467 -1.671 -0.499 -3.291** -5.224* -1.621 -1.016 -2.74**

2004-05 -3.59* -2.48** -7.205* -1.32 -1.09 -1.843 -0.903 -1.053 -3.20** -0.760 -2.011** -2.07**2001-05 -7.72* -8.13* -9.673* -4.77* -3.03** -4.112* -3.67** -5.218* -.673* -2.71** -2.948** -3.19**

Human Resource IPRs & Goodwill & Corporate & Shareholder Environment & OthersOther Intangibles


2001-02 -1.36 -1.401 0.269 -0.493 -4.57* 0.089 -3.47* -1.974 -0.919 -1.91 -2.144** -0.808

2002-03 -3.39* 0.825 -1.231 -2.50** -1.92 -4.675* -2.01 -1.322 -3.14** -2.23** -3.707* -4.54*

2003-04 0.509 -1.320 -3.19** -5.66* 0.400 -0.855 -0.99 0.000 -3.81* -2.13** -1.211 -3.06**

2004-05 -2.15** -0.080 -1.459 -3.102** -2.12** -4.364* -0.59 1.430 -0.132 -3.49* -1.538 -1.734

2001-05 -2.86** -1.604 -3.48* -6.73* -6.02* -6.132* -4.32* -0.861 -4.51* -5.32* -5.171* -7.83*

*t-value significant at 99% level of significance **t-value significant at 95% level of significance

Table 6: Results of Wilcoxon Matched Pair-sign Rank Test

Overall Disclosure Research & Development Strategy & Competition Market & Customer


2001-02 -3.320** -4.49* -0.253 -0.649 -1.13 -0.26 -2.324** -0.946 -1.06 -1.04 -0.878 -1.54

2002-03 -3.85* -3.72* -.5.51* -2.399** -2.08** -2.06** -2.56** -2.36** -3.45* -2.75** -1.54 -2.68**

2003-04 -4.723* -2.22** -.5.53* -2.665** -0.062 -1.70 -0.79 -2.90** -4.50* -1.54 -0.67 -2.51**

2004-05 -3.95* -2.64** -5.51* -2.834** -0.947 -1.77 -0.62 -1.336 -2.98** -0.574 -2.05** -1.96**

2001-05 -5.05* -5.45* -5.72* -4.029* -3.19* -3.49* -3.39* -4.31* -5.06* -2.57** -2.96* -2.87**

Human Resource IPRs & Goodwill & Corporate & Shareholder Environment & Others

Other IntangiblesPairs India US Japan India US Japan India US Japan India US Japan

2001-02 -1.69 -1.40 -0.204 -0.956 -3.96* -0.141 -3.03** -1.68 -0.924 -1.991** -1.95 -0.644

2002-03 -3.07** -0.96 -1.24 -2.414** -1.69 -4.01* -2.17** -1.13 -2.98** -2.156** -3.35* -3.88*

2003-04 -0.720 -1.43 -3.08** -4.526* -0.383 -1.23 -0.773 -0.485 -3.46* -2.212** -1.34 -2.99**

2004-05 -1.94 -0.033 -1.44 -2.996** -1.94 -4.07* -0.706 -1.207 -0.120 -3.463* -1.84 -1.85

2001-05 -2.96** -1.42 -3.03** -4.748* -4.61* -4.95* -3.82* -0.73 -3.77* -4.463* -4.25* -5.31*

* z-value significant at 99% level of significance ** z-value significant at 95% level of significance

8/13/2019 Vikalpa373-51-72

16/22

8/13/2019 Vikalpa373-51-72

17/22


Table8:ResultsofIndependentSamplet-testforIndustryClassification

Country

Year/Industry

2001

20

02

2003

2004

2005

Mean

t-value

p-value

Mean

t-va

lue

p-value

Mean

t-value

p-v

alue

Mean

t-value

p-value

M

ean

t-value

p-value

India

Manufacturing

15.

87

-1.44

0.157

16.64

-2

.17

0.035**

18.59

-1.48

0.144

20.31

-0.694

0.490

2

1.77

0.776

.441

Service

19.

89

23.19

23.06

22.15

1

9.67

R&D

intensive

17.22

1.603

0.117

18.491

2.873

0.006**

20.90

4.862

0.000*

21.85

3.496

0.001*

2

2.79

2.942

0.004**

Non-R&D

intensive

13.

83

12.777

10.49

14.39

1

6.19

US

Manufacturing

16.91

1.694

0.097

19.98

2.313

0.025**

22.31

3.380

0.001*

23.17

2.85

0.006**

2

4.55

3.135

0.003**

Service

14.

89

17.68

18.53

19.40

2

0.44

R&D

intensive

17.08

1.92

0.239

20.28

2.6

69

0.010**

22.22

2.50

0.0

15**

23.67

2.967

0.004**

2

4.76

3.028

0.004**

Non-R&D

intensive

15.

54

17.74

19.29

19.75

2

0.76

Japan

Manufacturing

13.

73

-.873

0.387

13.92

-1.163

0.251

17.33

-1.41

0.163

19.78

-1.17

0.244

2

1.94

-0.908

0.368

Service

14.91

15.51

19.74

22.01

2

3.69

R&D

intensive

15.

86

2.45

0.018**

16.25

2.916

0.005**

19.67

2.050

0.0

46**

21.49

1.419

0.162

2

3.07

1.540

0.130

Non-R&D

intensive

12.

96

13.00

16.68

19.19

2

0.08

*p-valued0.001**p-valued0.05

8/13/2019 Vikalpa373-51-72

18/22

68

Table 9: Multiple Regression Results of Indian Companies (2001-2005)

Year 2001 2002 2003 2004 2005

Variable - t- p- - t- p- - t- p- - t- p- - t- p-value value value value value value value value value value value value value value value

Sales 0.156 1.213 0.233 0.159 0.991 0.328 0.048 0.473 0.639 0.206 1.956 0.055 -0.009 -0.050 0.960

Assets 0.253 1.999 0.053 0.266 1.698 0.098 0.006 0.057 0.955 0.152 1.428 0.159 0.221 2.087 0.041**

ROA 0.631 4.882 0.000* 0.501 3.853 0.000* 0.791 4.75 0.000* 0.686 4.198 0.000* 0.026 0.198 0.844

ROE -0.098 -0.382 0.705 -0.242 -1.539 0.132 -0.507 -3.05 0.004** -0.365 -2.17 0.034** 0.060 0.548 0.586

Leverage -0.106 -0.705 0.485 0.144 0.135 0.895 -0.014 -0.11 0.913 -0.092 -.734 0.466 0.088 0.761 0.449

Market to 0.190 0.941 0.353 0.033 0.033 0.205 -0.099 -0.80 0.425 0.228 1.263 0.212 0.400 3.731 0.000*Book Prices

Industry Type 0.154 1.195 0.240 0.366 2.814 0.008** 0.513 5.19 0.000* 0.366 3.309 0.002** 0.225 2.089 0.041**

Constant 13.432 0.000* 5.697 0.000* 4.32 0.000* 5.786 0.000* 6.928 0.000*

Model Summary

R2 0.398 0.347 0.552 0.357 0.289

AdjustedR2 0.382 0.314 0.523 0.323 0.256

F- value 23.83 10.373 19.302 10.538 8.931

Significance 0.000* 0.000* 0.000* 0.000* 0.000*

*p-value0.001 **p-value0.05

Table 10: Multiple Regression Results of US Companies (2001 to 2005)

Year 2002 2003 2004 2005

Variable -value t- value p-value -value t- value p-value -value t- value p-value -value t- value p-value

Sales 0.099 0.736 0.465 -0.059 -0.449 0.655 -0.181 -1.490 0.142 -0.174 -1.486 0.142

Assets -0.086 -0.636 0.528 -0.019 -0.146 0.884 0.021 0.169 0.866 0.037 0.300 0.765

ROA -0.136 -1.012 0.317 0.044 0.342 0.734 0.154 1.265 0.211 0.140 1.187 0.240

ROE -0.155 -1.154 0.254 0.200 1.572 0.122 -0.151 -1.225 0.226 0.207 1.780 0.080

Leverage 0.060 0.440 0.662 -0.224 -1.739 0.088 -0.126 -1.026 0.309 0.001 0.008 0.994Market to Book Value -0.122 -0.887 0.380 -0.186 -1.443 0.155 -0.139 -1.134 0.262 0.046 0.387 0.700

Industry Type 0.356 2.669 0.010** 0.322 2.503 0.015** 0.363 2.967 0.004** 0.356 3.028 0.004**

Constant 28.41 0.000* 23.734 0.000* 21.922 0.000* 22.769 0.000*

Model Summary

R2 12.7% 10.4% 13.2% 12.7%

AdjustedR2 10.9% 8.7% 11.7% 11.3%

F-value 7.125 6.267 8.803 9.171

Significance 0.010** 0.015** 0.004** 0.004**

*P0.001 **P0.05Note: In the year 2001, no company attribute was significant.


8/13/2019 Vikalpa373-51-72

19/22


Table 11: Multiple Regression Results of Japanese Companies (2001-2005)

Year 2001 2002 2003 2004 2005Variable - t- p- - t- p- - t- p- - t- p- - t- p-

value value value value value value value value value value value value value value value

Sales 0.243 1.699 0.097 0.224 1.755 0.086 0.447 3.462 0.001* 0.183 0.749 0.457 0.469 1.055 0.297

Assets 0.157 1.077 0.288 0.413 3.271 0.002** 0.114 0.637 0.528 0.389 3.017 0.004** 0.252 3.870 0.000*

ROA 0.148 0.959 0.343 0.155 1.238 0.222 0.136 1.025 0.310 0.113 0.870 0.388 0.031 0.251 0.803

ROE 0.069 0.461 0.647 0.103 0.815 0.420 0.181 1.404 0.167 0.027 0.208 0.836 -0.028 -0.231 0.818

Leverage -0.052 -0.312 0.757 0.007 0.050 0.961 -0.009 -0.067 0.947 -0.015 -0.116 0.908 0.036 0.294 0.770

Market to 0.106 0.729 0.471 0.156 1.249 0.218 0.047 0.363 0.719 0.006 0.048 0.962 0.154 1.272 0.209Book Value

Industry Type 0.372 2.565 0.014** 0.427 3.378 0.002** 0.160 1.219 0.229 0.128 0.992 0.326 0.105 0.845 0.402

Constant 16.203 0.000* 15.683 0.000* 14.118 0.000* 13.390 0.000* 18.834 0.000*

Model Summary

R2 13.8% 30.9% 20.0% 15.1% 22%

Adj.R2 11.7% 27.7% 18.3% 13.5% 20.6%

F- value 6.58 9.82 11.99 9.104 14.98

Significance 0.014** 0.000* 0.001* 0.004** 0.000*

*p-value0.001**p-value0.05

Annexure: Disclosure Index of Intangibles

Items/Year

A. Research and Development

a1 R & D Facilities

a2 R & D Activities

a3 R & D Personnel

a4 R & D Focus Areas

a5 R & D Centres/ Basesa6 R & D Structure

a7 R & D Efforts/Initiatives

a8 R & D Results/Achievements

a9 R & D Expenditure

a10 R & D Expenditure as % of Sales

a11 Growth Rate of R&D Expenditure

a12 Reason for the Increase or Decrease in Expenditure

a13 Information on Accounting Treatment of R&D Expenditure

a14 In-process Research and Development

a15 Technology and Innovation

a16 Technical know-Howa17 New Technologies

a18 Details Regarding Funding of R&D

a19 Information Technology Initiatives

a20 Information Related to Software Cost

Grand Total(A)

B. Strategy & Competition

Strategy:-

b1 R & D Strategy

b2 Human Resource Strategy

Items/Year

b3 Intellectual Property Strategy

b4 Product Strategy

b5 Marketing Strategy

b6 Growth Strategy

b7 Growth Areas/Drivers

b8 Business Strategyb9 Suppliers Strategy

b10 Investment Strategy

b11 Global Strategy

b12 Regional Strategy

b13 Leadership Strategy

b14 Strengths

b15 Risk Management

b16 Liquidity Management

b17 Strategic Issues

b18 Strategic Targets

b19 Strategic Initiativesb20 Restructuring Activities

b21 Strategic Alliances

b22 Cost Control Measures / Initiatives

b23 Financial Strategies

b24 Information Related to Supply Chain Management

Competition:

b25 Type/Degree of Competition

b26 Competitive Factors

b27 Key Competitors

8/13/2019 Vikalpa373-51-72

20/22

70

Items/Year

b28 Industry Trends/Environment

b29 Risk Factors

b30 Efforts to Overcome Global Competition

Grand Total(B)

C. Market & Customer

Market:

c1 Primary Markets

c2 Major Products

c3 New Products

c4 Ratio of New Products to all Products

c5 Market Units/Stores

c6 No. of New Units/Stores

c7 New Markets/Target Markets

c8 Market Risk

c9 Market Share

c10 Marketing/Advertising Costs

c11 Market Growth

c12 Brand Names

c13 Top Brands

c14 Information Related to Distribution

c15 No. of Dealers

c16 Major Suppliers

c17 Supplier Relationships

c18 Sales of Company as % of Industry Sales

c19 Market leadership

c20 No. of Brands

c21 Brand Value

c22 Brand Building

c23 Sales Promotion/Marketing Activities

c24 Per Capita Consumption of Product

c25 Information Related to Product Quality

c26 Information Related to Product Design

Customer:

c27 Customer Base

c28 Major/Significant Customers

c29 New Customers

c30 Customer Loyalty

c31 Customer Relationships

c32 Customer Listc33 Geographic Division

c34 Sales Incentives with Customers

c35 Information on Customer Satisfaction

c36 Customer Services

Grand Total(C)

D. Human Resource

d1 No. of Employees

d2 No. of Employees(segment-wise)

d3 No. of Employees(area-wise)

Items/Year

d4 New employees

d5 Age Profile of Employees

d6 Average age of Employees

d7 Gender Classification of Employees

d8 Educational Index of Employees

d9 Value of Human Resource

d10 Value of Human Resource per Employee

d11 Return on Human Resource Value

d12 Training Programmes

d13 Human Resource Development Activities

d14 Leadership Team

d15 Recruiting and Staffing Programmes

d16 Employee Relationships

d17 Industrial Relations

d18 Remuneration Policy

d19 Particulars of Remuneration and Benefits Paid to key ManagerialPersonnel

d20 Incentive Plans for Employees

d21 Retirement Benefits

d22 Employment Productivity Over Years

d23 No. of Employees Exposed to Training programmes

d24 Information on Employee Satisfaction

d25 Information about Executive Officers

d26 Sales per Employee

Grand Total(D)

E. Intellectual Property Rights & Goodwill and Other IntangibleAssets

Intellectual Property Rights:

e1 Value of Intellectual Property Rights

e2 No. of Patents

e3 No. of Patents (area-wise)

e4 Value of Patents

e5 Value of Acquired Patents

e6 Patent Ranking

e7 Value of Trademarks/ Tradenames

e8 Names of Trademarks Registered for the Company

e9 Intellectual Property Cycle

e10 Intellectual Property Activities

e11 Intellectual Property Management

e12 Information on Trade Secrets, Copyrights etc.

e13 Value of Customer Relationships

Goodwill And Other Intangible Assets:

e14 Value of Goodwill

e15 Value of Acquired Goodwill

e16 Value of Goodwill (Segment-wise)

e17 Value of Goodwill (Area-wise)

e18 Value of Other Intangible Assets

e19 Items Included in Other Intangible Assets


8/13/2019 Vikalpa373-51-72

21/22


Items/Year

e20 Accounting Treatment for Goodwill and Other Intangible Assets

e21 Amortization Method for Goodwill and other Intangible Assets

e22 Amortization Period for Goodwill and Other Intangible Assets

e23 Amortized Value for Goodwill and Other Intangible Assets

e24 Carrying Value for Goodwill and Other Intangible Assets

e25 Details Regarding Impairment Test Criteria for Goodwill and Other

Intangible Assets

Grand Total(E)

F. Corporate & Shareholder Information

Corporate Information:

f1 Corporate Values

f2 Corporate Goals/Objectives

f3 Corporate Vision

f4 Corporate Mission

f5 Corporate Culture

f6 Corporate Profile

f7 Corporate Philosophy

f8 Corporate History

f9 Corporate Accomplishments

f10 Corporate Structure

f11 Corporate Data

f12 Corporate Ethics/Code of Conduct

Shareholder Information:

f13 Shareholder Complaints

f14 No. of Shareholders

f15 Shareholding Distribution (type of shareholder)

f16 Shareholding Distribution (number of shares held)

f17 Share Price Data

f18 Major Shareholders

Grand Total(F)

Items/Year

G. Environment & Others

Environment:

g1 Environmental Activities

g2 Environmental Philosophy

g3 Environmental Programmes/Policies

g4 Environmental Initiatives

g5 Environmental Commitments

g6 Environmental Management Framework

g7 Environmental Matters

g8 Environmental Expenditure

g9 Products/Technologies Contributing to Environment

Other:

g10 Corporate Social Responsibility

g11 Corporate Governance

g12 Contingencies & Commitments

g13 Off Balance Sheet Arrangements

g14 Lease

g15 Related Party Transactions

g16 Hedging Activities

g17 Fair Value of Financial Instruments

g18 Contractual Obligations

g19 New Accounting Standards

g20 Accounting Changes

g21 Outlook/ Future

g22 Subsequent Events

g23 Opportunities and Challenges

g24 Information on Awards

g25 Information on Credit Ratings

Grand Total(G)

REFERENCES

Accounting Standard 26 (2002). Intangible assets. The CharteredAccountant, February.

Accounting Terminology Bulletin No. 1 (1953). Review andresume, AICPA, Paragraph 9.

Ahmed, K., and Courtis, J. K. (1999). Association between cor-porate characteristics and disclosure level in annual re-

ports: A meta-analysis. British Accounting Review, 31,35-61.

Bergamini, I.; and Zambon, S. (2005). A scoring methodologyfor ranking company disclosure on intangibles. EU PrismResearch Project. WP4 Accounting, Auditing and Finan-cial Analysis in the New Economy, available atwww.euintangibles.net/library/localfiles/WP4/4.2_Bergamini&Zambon2002.pdf

Citron, D.; Holden J.; Selim, G.; and Oehleke, F. (2005). Dovoluntary intellectual capital disclosures provide infor-mation about firms intangible assets? EBK, Working Pa-per 2005/11 available at website www.ebkresearch.org/

downloads/workingpapers/wpo511_citron_etal.pdf.

Cooke, T. E. (1989). Voluntary corporate disclosure by Swed-ish companies. Journal of International Financial Manage-ment and Accounting, 1(2), 171-195.

Courtis, J. K. (1986). An investigation into annual report read-ability and corporate risk-return relationships. Account-

ing and Business Research, 16(64), 19-27.Edvinson, L., and Malone, M.S. (1997). Intellectual capital Re-

alizing your companys true value by finding its hiddenbrainpower. New York: Harper Business Publisher.

FASB (2001). Summary of statement no.142 Goodwill andother intangible assets. available at www. Fasb.org

Firth, M. A. (1980). Raising finance and finns corporate re-porting policies.Abacus, 16(2), 100-115.

Goldfinger, C. (1997). Understanding and measuring the in-tangible economy: Current status and suggestions forfuture research. CIRET Seminar, Helsinki.

8/13/2019 Vikalpa373-51-72

22/22

Gujarati, N. D. (2004). Basic econometrics. Fourth Edition, NewDelhi: Tata McGraw-Hill Publishing Company Limited,

Hirschey, M. (1993). Advertising R&D expenditure and themarket value of the firm.Financial Management, 22ndDe-cember, available at www.allbusiness,com/marketing-advertising/advertising/416365-1.html

Jarboe, K. P. (2005). Reporting intangibles A hardlook at im-proving business information in the US. Working Paper

No. 1, Athena Alliance, available at www.athenaalliance.org

Kang, H. (2006). Reporting intangible assets: Voluntary disclosurepractices of the top emerging market companies. Ph.D. Dis-sertation, The University of New South Wales, Australia.

Kaplan, R.S., and Norton, D.P. (2000). The balanced scorecard.Boston: Harvard Business School Press.

Knutson, P. (1993). Financial reporting in the 1990s and be-yond: Position paper on the association for investmentmanagement & research. Charlotteville, VA: Associationfor Investment Management & Research, available atwww.emeraldinsight.com/published/emeraldfulltext

article/pdf/0510210502_ref.html.Lang, M., and Lundholm, R. (1993). Cross-sectional determi-

nants of analyst ratings of corporate disclosure.Journal ofAccounting Research, 31(2), 246-271.

Lev, B. (2001) Intangibles: Management, measurement and report-ing.Washington: Brooklyn Institution Press.

Lev, B. (2003). Remarks on the measurement, valuation andreporting of intangible assets. FRBNY Economic PolicyReview, September, 17-22.

Lev, B. (2004). Sharpening the intangibles edge.Harvard Busi-ness Review, June, 109-118.

Marston, C. L., and Shrives, P. J. (1991). The use of disclosure

indices in accounting research: A review article. British

Accounting Review, 23,195-210.

OECD (2006). Intellectual assets and value creation: Implica-tions for corporate reporting. Available at www.oecd.org/daf/corporate-affairs/.

Oliveras, E., and Kasperskaya, Y. (2002). Reporting in intellec-tual capital in Spain.Journal of Economic Literature Classi-fication , available at www.papers.ssrn.com/so13/papers.cfm?abstract_id=848664.

Rao, M.M. (2003). Leading with knowledge. New Delhi: TataMcGraw-Hill Publishing Co. Ltd.

Robbins, W. A., and Austin, K. R. (1986). Disclosure quality ingovernmental financial reports: An assesment of the ap-propriateness of a compound measure.Journal of Account-ing Research, 24(2), 412-421.

Saudagaran, S.M. (2001). International accounting, Singapore:Thomson Asia Pte. Ltd.

Sisodia, A.S. (2001). Valuing the intangibles. Chartered Finan-cial Analyst, November.

Tasker, S. (1998). Bridging the information gap: Quarterly con-ference calls as a medium for voluntary disclosure. Re-view of Accounting Studies, 3, 137-167.

Taylor, S., and Associates (1998). Full disclosure 1998.London,United Kingdom: Shelley Taylor.

Turban, E., Rainer, R.K., and Potter, R.E. (2000). Introduction toinformation technology. Singapore: John Wiley and SonsInc.

Williams, S. (2001). Is intellectual capital performance and re-porting practice related?Journal of Intellectual Capital, 2(3),192-203.

Zeithaml, A., Gremler, D., Bitner, J., and Pandit,A. (2008). Ser-vices marketing-integrating customer focus across the firm.New Delhi: Tata McGraw- Hill Publishing Co. Ltd.

Acknowledgement:The author wishes to acknowledge hersupervisor, Prof. Dinesh K Gupta (University Business School,Panjab University, Chandigarh), for his consistent support,encouragement, and help in completing this study. She is alsothankful to Dr. Suresh Kumar (Department of Statistics, PanjabUniversity, Chandigarh) and Dr. Monica Bedi (University

Business School, Panjab University, Chandigarh) for theirthoughtful advice which contributed a lot to the statisticalapplications of this research work. She expresses her gratitudeto her husband, Dr. Gaurav Kalotra for his support and en-couragement.

Ragini is working as an Assistant Professor of Commerce atGovernment Post Graduate College, Naraingarh (Ambala). AMasters in Commerce from University Business School, PanjabUniversity, Chandigarh she completed her Ph.D. from the sameUniversity in 2010 under the guidance of Prof. Dinesh KumarGupta. She worked as a Guest Faculty at University Business

School, Panjab University, Chandigarh after submitting herPh.D. thesis and thereafter as an Assistant Professor of Com-merce at Government Post Graduate College, Chandigarh forone and a half years.

e-mail: [email protected]

Date post:	04-Jun-2018
Category:	Documents
Upload:	sangram-panda
View:	218 times
Download:	0 times

Vikalpa373-51-72

Documents