The Moderating Effect of Board Homogeneity on the Relationship Between Intellectual Capital Disclosure and Corporate Market Value of Listed Firms in Nigeria

Authors

  • Mutalib Anifowose International Islamic University Malaysia
  • Hafiz Majdi Ab. Rashid International Islamic University Malaysia
  • Hairul Azlan Annuar International Islamic University Malaysia

DOI:

https://doi.org/10.31436/ijema.v25i1.408

Abstract

This paper examines whether or not concentration of board members based on ethnicity and religion can impact on intellectual capital disclosure and thereby influence the corporate market value in Nigeria. This article reports the results from a two-step dynamic system generalized method of moment estimation based on 455 firm-year observations from 91 listed firms on the main board of the Nigeria Stock Market for the period 2010-2014. The study measures board homogeneity based on religious and ethnic affiliations of corporate board members in line with upper echelons theory in explaining their moderating effect on the relationship between intellectual capital disclosure and firm value which is proxied by cost of capital and share price volatility. The empirical results indicate that board ethnic and religious composition has moderating effect on the relationship between intellectual capital disclosure and cost of corporate market value. Though the finding might not be extended to smaller firms which could be a limitation, the results of this study are useful to all stakeholders especially the financial reporting council of Nigeria in policy formulation and perhaps issuance of corporate governance standard that would provide a more diversified board than currently being practiced in the country among the larger firms. The study is the first to consider moderating effect of religious and ethnic composition on the relationship between intellectual capital (IC) disclosure and corporate market as well as controls for heteroscedasticity and endogeneity issues by adopting two-step system generalized method of moments as a parameter estimator.

Author Biographies

Mutalib Anifowose, International Islamic University Malaysia

Department of Accounting

 

Hafiz Majdi Ab. Rashid, International Islamic University Malaysia

Department of Accounting

Associate Professor

Hairul Azlan Annuar, International Islamic University Malaysia

Department of Accounting

Associate Professor

References

Abdul Rashid, A., M.K. Ibrahim, R. Othman, and K.F. See. “IC Disclosures in IPO Prospectuses: Evidence from Malaysia.” Journal of Intellectual Capital 13, no. 1 (2012): 57-80.

Abeysekera, I. “Intellectual Capital Disclosure Trends: Singapore and Sri Lanka.” Journal of Intellectual Capital 9, no. 4 (2008): 723-37.

Aiken, Leona S., Stephen G. West, and Raymond R. Reno. Multiple Regression: Testing and Interpreting Interactions. USA: Sage, 1991.

Al-Matari, E.M., F.H. Fadzil, and A.K. Al-Swidi. “The Moderating Effect of Board Diversity on the Relationship between Audit Committee Characteristics and Firm Performance in Oman: Empirical Study.” Middle East Journal of Scientific Research 21, no. 5 (2014): 792-801.

Al-Matari, E.M., F.H. Fadzil, and A.K. Al-Swidi. “The Moderating Effect of Board Diversity on the Relationship between Board of Directors Characteristics and Firm Performance in Oman: Empirical Study.” Middle East Journal of Scientific Research 21, no. 5 (2014): 782-91.

Al-Matari, E.M., A.K. Al-Swidi, and F.H. Fadzil. “The Moderating Effect of Board Diversity on the Relationship between Executive Committee Characteristics and Firm Performance in Oman: Empirical Study.” Asian Social Science 10, no. 12 (2014): 6-20.

An, Y., H. Davey, and I.R.C. Eggleton. “Towards a Comprehensive Theoretical Framework for Voluntary IC Disclosure.” Journal of Intellectual Capital 12, no. 4 (2011): 571-85.

Arellano, M., and S. Bond. “Some Tests of Specification for Panel Data: Monte Carlo Evidence and An Application to Employment Equations.” The Review of Economic Studies 58, no. 2 (1991): 277-97.

Bantel, K.A., and S.E. Jackson. “Top Management and Innovations in Banking: Does the Composition of the Top Team Make a Difference?” Strategic Management Journal 10, S1 (1989): 107-24.

Baskin, J., “An Empirical Investigation of the Pecking Order Hypothesis.” Financial Management 18, no. 1 (1989): 26-35.

Ben-Amar, W., C. Francoeur, T. Hafsi, and R. Labelle. “What Makes Better Boards? A Closer Look at Diversity and Ownership.” British Journal of Management 24 (2013): 85-101.

Beretta, S., and S. Bozzolan. “A Framework for the Analysis of Firm Risk Communication.” The International Journal of Accounting 39, no. 3 (2004): 265-88.

Blundell, R., and S. Bond. “GMM Estimation with Persistent Panel Data: An Application to Production Functions.” Econometric Reviews 19, no. 3 (2000): 321-40.

Blundell, R., and S. Bond. “Initial Conditions and Moment Restrictions in Dynamic Panel Data Models.” Journal of Econometrics 87, no. 1 (1998): 115-43.

Bodie, Zvi, Alex K., and Alan J. Marcus. Investment. 9th ed. New York: McGraw-Hill/Irwin, 2011.

Bontis, N. “Intellectual Capital Disclosure in Canadian Corporations.” Journal of Human Resource Costing & Accounting 7, no. 1 (2003): 9-20.

Botosan, C.A. “Disclosure and the Cost of Capital: What Do We Know?” Accounting and Business Research 36, Special Issue (2006): 31-40.

Botosan, C.A. “Disclosure Level and the Cost of Equity Capital.” Accounting Review (1997): 323-49.

Botosan, C.A., and M.A. Plumlee. “Assessing Alternative Proxies for the Expected Risk Premium.” The Accounting Review 80, no. 1 (2005): 21-53.

Botosan, C.A., and M.A. Plumlee. “A Re‐Examination of Disclosure Level and the Expected Cost of Equity Capital.” Journal of Accounting Research 40, no. 1 (2002): 21-40.

Boujelbene, M.A., and H. Affes. “The Impact of Intellectual Capital Disclosure on Cost of Equity Capital: A Case of French Firms.” Journal of Economics Finance and Administrative Science 18, no. 34 (2013): 45-53.

Bowen, R., X. Chen, and Q. Cheng. “Analyst Coverage and the Cost of Raising Equity Capital: Evidence from Underpricing of Seasoned Equity Offerings.” Contemporary Accounting Research 25, no. 3 (2008): 657-99.

Burgman, R., and G. Roos. “The Importance of Intellectual Capital Reporting: Evidence and Implications.” Journal of Intellectual Capital 8, no. 1 (2007): 7-51.

Burke, R.J. “Women Directors: Selection, Acceptance and Benefits of Board Membership.” Corporate Governance: An International Review 5, no. 3 (1997): 118-25.

Carter, D.A., B.J. Simkins, and W.G. Simpson. “Corporate Governance, Board Diversity, and Firm Value.” Financial Review 38, no. 1 (2003): 33-53.

Certo, S.T., and M. Semadeni. “Strategy Research and Panel Data: Evidence and Implications.” Journal of Management 32, no. 3 (2006): 449-71.

Coffey, B.S., and J. Wang. “Board Diversity and Managerial Control as Predictors of Corporate Social Performance.” Journal of Business Ethics 17, no. 14 (1998): 1595-603.

Confab. The National Conference Main Report. Nigeria: Premium Times, 2014. http://media.premiumtimesng.com/national-conference/wp-content/uploads/National-Conference-2014-Report-August-2014-Table-of-Contents-Chapters-1-7.pdf

Cordazzo, M., and P.G.M.C. Vergauwen. “Intellectual Capital Disclosure in the UK Biotechnology IPO Prospectuses.” Journal of Human Resource Costing & Accounting 16, no. 1 (2012): 4-19.

Crano, W.D., and X. Chen. “The Leniency Contract and Persistence of Majority and Minority Influence.” Journal of Personality and Social Psychology 74, no. 6 (1998): 1437-50.

Daily, C.M., and D.R. Dalton. “Women in the Boardroom: A Business Imperative.” Journal of Business Strategy 24, no. 5 (2003): 8-9.

Dumay, J., and L. Cai. “A Review and Critique of Content Analysis as a Methodology for Inquiring into IC Disclosure.” Journal of Intellectual Capital 15, no. 2 (2014): 264-90.

Easton, P.D. “Peg Ratios, and Estimating the Implied Expected Rate of Return on Equity Capital.” The Accounting Review 79, no. 1 (2004): 73-95.

Edvinsson, L.. “Developing Intellectual Capital at Skandia.” Long Range Planning 30, no. 3 (1997): 366-73.

El Ghoul, S., O. Guedhami, C.C. Y Kwok, and D.R. Mishra. “Does Corporate Social Responsibility Affect the Cost of Capital?” Journal of Banking & Finance 35, no. 9 (2011): 2388-406.

El Ghoul, S., O. Guedhami, Y. Ni, J. Pittman, and S. Saadi. “Does Religion Matter to Equity Pricing?” Journal of Business Ethics 111, no. 4 (2012): 491-518.

Erhardt, N.L., J.D. Werbel, and C.B. Shrader. “Board of Director Diversity and Firm Financial Performance.” Corporate Governance: An International Review 11, no. 2 (2003): 102-11.

Fama, E.F. “Agency Problems and the Theory of the Firm.” Journal of Political Economy, 88, no. 2 (1980): 288-307.

Fama, E.F., and K.R. French. “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics 33, no. 1 (1993): 3-56.

Field, Andy. Discovering Statistics Using IBM SPSS Statistics. London: Sage, 2013.

Finkelstein, S., and D.C., Hambrick. “Top-Management-Team Tenure and Organizational Outcomes: The Moderating Role of Managerial Discretion.” Administrative Science Quarterly (1990): 484-503.

Galbreath, J. “Which Resources Matter the Most to Firm Success? An Exploratory Study of Resource-Based Theory.” Technovation 25, no. 9 (2005): 979-87.

Guthrie, J., R. Petty, and F. Ricceri. “The Voluntary Reporting of Intellectual Capital: Comparing Evidence from Hong Kong and Australia.” Journal of Intellectual Capital 7, no. 2 (2006): 254-71.

Haji, A.A., & Anifowose, M. “Initial Trends in Corporate Disclosures Following the Introduction of Integrated Reporting Practice in South Africa.” Journal of Intellectual Capital 18, no. 2 (2017): 373-99.

Haji, A.A., & Anifowose, M. “The Trend of Integrated Reporting Practice in South Africa: Ceremonial or Substantive?” Sustainability Accounting, Management and Policy Journal, 7, no. 2 (2016): 190-224.

Haji, A.A., and N.A.M. Ghazali. “Intellectual Capital Disclosure Trends: Some Malaysian Evidence.” Journal of Intellectual Capital 13, no. 3 (2012): 377-97.

Haji, A.A., and N.A.M. Ghazali. “A Longitudinal Examination of Intellectual Capital Disclosures and Corporate Governance Attributes in Malaysia.” Asian Review of Accounting 21, no. 1 (2013): 27-52.

Haji, A.A., and S. Mubaraq. “The Trends of Intellectual Capital Disclosures: Evidence from the Nigerian Banking Sector.” Journal of Human Resource Costing & Accounting 16, no. 3 (2012): 184-209.
Halcoussis, Dennis. Undersatnding Econometrics. 1st ed. USA: Thomson Corporation, 2005.

Hambrick, D.C. “Upper Echelons Theory: An Update.” Academy of Management Review 32, no. 2 (2007): 334-43.

Hambrick, D.C., T.S. Cho, and M. Chen. “The Influence of Top Management Team Heterogeneity on Firms' Competitive Moves.” Administrative Science Quarterly 41, no. 4 (1996): 659-84.

Hambrick, D.C., and S. Finkelstein. “Managerial Discretion: A Bridge Between Polar Views of Organizational Outcomes.” Research in Organizational Behavior 9 (1987): 369-406.

Hambrick, D.C., and P.A. Mason. “Upper Echelons: The Organization as a Reflection of Its Top Managers.” Academy of Management Review 9, no. 2 (1984): 193-206.

Haniffa, R.M., and T.E. Cooke. “Culture, Corporate Governance and Disclosure in Malaysian Corporations.” Abacus 38, no. 3 (2002): 317-49.

Hao, C.L., and C. Shih. “How Executive SHRM System Links to Firm Performance: The Perspectives of Upper Echelon and Competitive Dynamics.” Journal of Management 34, no. 5 (2008): 853-81.

Hilary, G., and K.W. Hui. “Does Religion Matter in Corporate Decision Making in America?” Journal of Financial Economics 93, no. 3 (2009): 455-473.

Hill, Carter R., William E. Griffiths, and Guay C. Lim. Principles of Econometrics. 4th ed. USA: John Wiley & Sons, Inc., 2011.

Hinton, Perry R., Charlotte B., Isabella M., and Bob Cozens. SPSS Explained. New York: Taylor & Francis, 2004.

Hull, J., and A. White. “The Pricing of Options on Assets with Stochastic Volatilities.” The Journal of Finance 42, no. 2 (1987): 281-300.

Hussainey, K., C.O. Mgbame, and A.M. Chijoke-Mgbame. “Dividend Policy and Share Price Volatility: UK Evidence.” The Journal of Risk Finance 12, no. 1 (2011): 57-68.

Ibikunle, J., and Y. M. Damagum. “The Impact of Board Mechanisms on Intellectual Capital Disclosures in Nigeria.” The Journal of Accounting and Management 3, no. 1 (2013): 10-21.

Johanne, G., B. Stephen, and R. Bruce. “Board Diversity in the United Kingdom and Norway: An Exploratory Analysis.” Business Ethics: A European Review 16, no. 4 (2007): 344-57.

Joshi, M., D. Cahill, J. Sidhu, and M. Kansal. “Intellectual Capital and Financial Performance: An Evaluation of the Australian Financial Sector.” Journal of Intellectual Capital 14, no. 2 (2013): 264-85.

Kamath, G.B., “Intellectual Capital and Corporate Performance in Indian Pharmaceutical Industry.” Journal of Intellectual Capital 9, no. 4 (2008): 684-704.

Keasey, K., S. Thompson, and M. Wright. “Corporate Governance, Economic, Management, and Financial Issues.” Managerial Auditing Journal 13, no. 6 (1998): 390-1.

Keenan, J., and M. Aggestam. “Corporate Governance and Intellectual Capital- Some Conceptualisations.” Corporate Governance 9, no. 4 (2001): 259-75.

Khurana, I.K., and K.K Raman. “Litigation Risk and the Financial Reporting Credibility of Big 4 Versus Non-Big 4 Audits: Evidence from Anglo-American Countries.” The Accounting Review 79, no. 2 (2004): 473-95.

Knight, D., C.L. Pearce, K.G. Smith, J.D. Olian, H.P. Sims, K.A. Smith, and P. Flood. “Top Management Team Diversity, Group Process, and Strategic Consensus.” Strategic Management Journal 20, no. 5 (1999): 445-65.

Lev, B., and T. Sougiannis. “The Capitalization, Amortization, and Value-Relevance of R&D.” Journal of Accounting and Economics 21, no. 1 (1996): 107-38.

Maznevski, M.L., C.B. Gomez, J.J. DiStefano, N.G. Noorderhaven, and P. Wu. “Cultural Dimensions at the Individual Level of Analysis the Cultural Orientations Framework.” International Journal of Cross Cultural Management 2, no. 3 (2002): 275-95.

McGuire, S.T., T.C. Omer, and N.Y. Sharp. “The Impact of Religion on Financial Reporting Irregularities.” The Accounting Review 87, no. 2 (2012): 645-73.

Mishra, R.K., and S. Jhunjhunwala. “Age Diversity-Toward a Balanced Board.” In Diversity and the Effective Corporate Board, 75-85. London: Academic Press Publications, 2013.

Mouritsen, J., P.N. Bukh, and B. Marr. “Reporting on Intellectual Capital: Why, What and How?” Measuring Business Excellence 8, no. 1 (2004): 46-54.

Muhammad, N.M.N., and M.K.A. Ismail. “Intellectual Capital Efficiency and Firm’s Performance: Study on Malaysian Financial Sectors.” International Journal of Economics and Finance 1, no. 2 (2009): 206-12.

Ntim, C.G. “Board Diversity and Organizational Valuation: Unravelling the Effects of Ethnicity and Gender.” Journal of Management & Governance 19, no. 1 (2015): 167-195.

Okpala, P.O., and O.C. Chidi. “Human Capital Accounting and Its Relevance to Stock Investment Decisions in Nigeria.” European Journal of Economics, Finance and Administrative Sciences 21 (2010): 64-76.

Oliveras, E., C. Gowthorpe, Y. Kasperskaya, and J. Perramon. “Reporting Intellectual Capital in Spain.” Corporate Communications: An International Journal 13, no. 2 (2008): 168-81.

Orens, R., W. Aerts, and N. Lybaert. “Intellectual Capital Disclosure, Cost of Finance and Firm Value.” Management Decision 47, no. 10 (2009): 1536-54.

Petty, R., F. Ricceri, and J. Guthrie. “Intellectual Capital: A User’s Perspective.” Management Research News 31, no. 6 (2008): 434-47.

Roodman, D. “How to Do Xtabond2: An Introduction to Difference and System GMM in Stata.” The Stata Journal 9 (2008): 86–136.

Salman, R.T., M. Mansor, A.D. Babatunde, and M. Tayib. “Impact of Intellectual Capital on Return on Asset in Nigerian Manufacturing Companies.” Interdisciplinary Journal of Research in Business 2, no. 4 (2012): 21-30.

Schultz, E.L., D.T. Tan, and K.D. Walsh. “Endogeneity and the Corporate Governance-Performance Relation.” Australian Journal of Management 35, no. 2 (2010): 145-63.

Soete, L.G., and B.J. Ter Weel. “Innovation, Knowledge Creation and Technology Policy: The Case of the Netherlands.” De Economist 147, no. 3 (1999): 293-310.

Teece, David J. Managing Intellectual Capital: Organizational, Strategic, and Policy Dimensions: Organizational, Strategic, and Policy Dimensions. Oxford University Press, 2000.

Tracy-Anne, S., S. Michelle, and C. Murray. “Intellectual Capital Reporting: A Longitudinal Study of New Zealand Companies.” Journal of Intellectual Capital 15, no. 1 (2014): 157-72.

Upton, W.S. “Business and Financial Reporting. Challenges from the New Economy.” In Financial Accounting Series (FASB). Special report (219-A),[Online], Available: http://www. fasb. org/articles&reports/new_economy.shtml Citeseer, 2001.

Vafaei, A., D. Taylor, and K. Ahmed. “The Value Relevance of Intellectual Capital Disclosures.” Journal of Intellectual Capital 12, no. 3 (2011): 407-29.

Weaver, G.R., and B.R. Agle. “Religiosity and Ethical Behavior in Organizations: A Symbolic Interactionist Perspective.” Academy of Management Review 27, no. 1 (2002): 77-97.

Wellalage, N.H,, and S. Locke. “Corporate Governance, Board Diversity and Firm Financial Performance: New Evidence from Sri Lanka.” International Journal of Business Governance and Ethics 8, no. 2 (2013): 116-36.

White, Kenneth J., and Linda T. Bui. Basic Econometrics: A Computer Handbook Using Shazam: For Use with Gujarati: Basic Econometrics. New York: McGraw-Hill, 1988.

William, Greene. Econometric Analysis. 6th ed. New Jersey: Pearson Education Inc, 2008.

Williams, S.M. Corporate Governance Diversity and Its Impact on Intellectual Capital Performance in an Emerging Economy. Calgary: University of Calgary, Faculty of Management, 2001.

Wintoki, M.B., J.S. Linck, and J.M. Netter. “Endogeneity and the Dynamics of Internal Corporate Governance.” Journal of Financial Economics 105, no. 3 (2012): 581-606.

Wooldridge, Jeffrey M. Econometric Analysis of Cross Section and Panel Data. USA: MIT Press, 2010.

Downloads

Published

2017-05-31

How to Cite

Anifowose, M., Ab. Rashid, H. M., & Annuar, H. A. (2017). The Moderating Effect of Board Homogeneity on the Relationship Between Intellectual Capital Disclosure and Corporate Market Value of Listed Firms in Nigeria. International Journal of Economics, Management and Accounting, 25(1), 71–103. https://doi.org/10.31436/ijema.v25i1.408

Issue

Section

Articles