INTELLECTUAL CAPITAL IN INDONESIA: A CONTENT ANALYSIS ON ANNUAL REPORTING OF LISTED COMPANIES THESIS Proposed as a requirement for obtaining Sarjana degree at Program Accounting Education Level Strata-1 (Sarjana/Bachelor) by Yulia 0600674195 BINUS INTERNATIONAL BINA NUSANTARA UNIVERSITY JAKARTA 2006
ii INTELLECTUAL CAPITAL IN INDONESIA: A CONTENT ANALYSIS ON ANNUAL REPORTING OF LISTED COMPANIES THESIS Prepared by: Yulia 0600674195 Approved by: Parulian Sihotang Lecture Code: L2063 BINUS INTERNATIONAL BINA NUSANTARA UNIVERSITY JAKARTA 2006
iii BINUS INTERNATIONAL BINA NUSANTARA UNIVERSITY Major Accounting Sarjana Ekonomi Thesis Semester Even year 2005/2006 THESIS TITLE INTELLECTUAL CAPITAL IN INDONESIA: A CONTENT ANALYSIS ON ANNUAL REPORTING OF LISTED COMPANIES Abstract YULIA 0600674195 Objectives This exploratory study which replicates the content analysis methodology of Guthrie et al. (1999) towards intellectual capital disclosures in the annual report has set several objectives. Primarily, the empirical investigation assesses whether Indonesian listed companies have intellectual capital. Secondly, the investigation also examines the extent to which Indonesian listed companies are publicly reporting their intellectual capital both in the amount and type of information being reported. Thirdly, the study explores the extent to which the level and type of Intellectual Capital disclosures could be related to companies characteristics such as industry category, age, ownership structure, and market capitalization. Finally, study assessed
iv the similarities and differences of intellectual capital research in Indonesia with other related and similar research worldwide. Method The method used In this study is content analysis. The intellectual capital components and synonyms are used as units of analysis to content analyze the annual report of the samples. The sample was Indonesia s 23 largest companies listed in the Jakarta Stock Exchange. Results and conclusions In light of research limitations, the preliminary and tentative findings of this study indicate that first of all, similar to findings worldwide, Indonesian companies have substantial intellectual capital and they do aware and disclose their intellectual capital in the annual reports. Second, Indonesian companies aware and disclose intellectual capital. Third, the trend in disclosing intellectual capital as a whole is increasing however, the pattern is unpredictable. Fourth, the main disclosure on intellectual capital by Indonesian companies is relational capital followed by human capital and organizational capital. Fifth, there is a difference on the level of intellectual capital disclosure in respect of company characteristics. However, all of the sample companies disclosed the same information regardless of the company characteristics. Next, the intellectual capital components identified is inconsistent as no framework available in helping the companies discloses intellectual capital. Seventh, most of the intellectual capital components identified are in qualitative format. Finally, there are similarities and differences between the research results conducted in Indonesia with other similar research conducted overseas. Key words Intellectual Capital, Disclosures, Company Annual Reports, Indonesia
v Preface This thesis with a title: Intellectual Capital in Indonesia: a content analysis on annual reporting of listed companies, was prepared and designated to fulfill the final requirement for a completion of undergraduate degree on Accounting major, School of Accounting, Binus International, Bina Nusantara University. This thesis will be the final project that the author planned and prepared during her undergraduate study period. The author is excited, thrilled, and joyful for the completion of the thesis, which she expects to provide value added knowledge to the readers. Moreover, the author expects that her juniors at School of Accounting, Binus International will do more research on Intellectual Capital Disclosure which will contribute the its development. The author would like to thank you the faculty member and staff of Binus International that have played a significant role to the completion of the author s degree. The author believes that the supervision from the faculty member and the assistance of the staff contribute directly and indirectly to the author s study completion.
vi At this opportunity, the author would like to thank you the following people: 1. Mr. Firdaus Alamsjah, executive director of the Joeseph Wibowo Center for giving me the opportunity to study ay Binus International. 2. Mr. Minaldi Louis, the director of Binus International for giving me the opportunity to hold D ABC (The Accounting and Business Competition) thrive for excellence, which was my last experience in organizing an event at Binus International. 3. Mr. Parulian Sihotang, the dean of economic faculty of Bina Nusantara University for his supervision on the thesis. The author also would like to thank for his decisions on giving the opportunity to students of Accounting School to experience a competitive environment in other universities during his leadership in Binus International. 4. Mr. Dezie L Warganegara, the head of Accounting School of Binus International for his support and supervision. 5. Mrs. Ersa TW, the deputy of Accounting School of Binus International for her support on every project and competition that the author had experienced. 6. Mr. Dominique R, the deputy of Accounting School of Binus International for his interesting visions during the sessions. 7. Mr. Suroyo M, the taxation lecturer of Binus International for letting the students to study and learn more about taxation. The author also would like to thank him for his support in every project and competition that the author had experienced.
vii 8. Accounting students of Binus International batch 2006 who have been fighting together for the completion of the undergraduate degree. 9. The author s families who have support the author in the completion of the degree. 10. The author s fiancée who have giving his support for the completion of the degree. 11. Everyone who have supported the author for the degree completion. 12. Faculty member and staff of Binus JWC for helping the author in finishing the degree. The author believes that without the involvement and support of every parties stated above the author will not be able to finish the undergraduate degree at Binus International, Bina Nusantara University. The author realizes that the thesis is not perfect, hence, expects suggestions and advices for further improvements intended for future projects and papers. Finally, the author expects that this thesis will provide value added knowledge for the author herself and the readers. Jakarta, June 10, 2006 The author
viii Table of Contents Page Title Page Certificate of Approval.. Abstract.. Preface Table of Contents... List of Tables. List of Figures List of Graphs i ii iii V viii xiv xvi xvii Chapter 1 Chapter 2 Introduction... 1.1 Background of the problem... 1.2 Problem identification. 1.3 Scope 1.4 Aims and benefits 1.5 Research methodology 1.5.1 Content analysis.. 1.5.2 Population and sample of the study. 1.5.3 Data gathering and analysis.. 1.6 Thesis structure... Theoretical Foundation: literature review on intellectual Capital... 2.1 The emergence of the new economy... 1 1 4 4 5 6 6 7 7 8 9 10
ix 2.2 Brief history of intellectual capital. 2.3 The definition of intellectual capital... 2.4 Three types of intellectual capital... 2.5 What is intellectual capital disclosure 12 13 17 19 2.6 Accounting framework on the definition and disclosure of intellectual capital... 21 2.7 Reasoning on the development and management of intellectual capital.. 24 2.8 Justification on the emergence of the intellectual capital disclosure... 25 2.9 Empirical research and findings on intellectual capital Chapter 3 disclosures.. Research methodology. 3.1 Research questions and aims. 3.2 The time and place where Research is being conducted... 3.3 Research design.. 3.3.1 Purpose of the study.. 3.3.2 Types of investigation... 3.3.3 Extent of researcher interference.. 3.3.4 Study setting. 3.3.5 Unit of analysis. 3.3.6 Time horizon. 3.3.7 Sampling design 30 33 33 34 35 35 35 36 36 36 36 37
x Chapter 4 3.3.8 Data collection method. 3.3.9 Measurement and measures.. 3.3.10 Identification of intellectual capital. 3.3.11 Data analysis (Content Analysis) 3.3.12 Company characteristics. Industry.. Age... Ownership structure.. Market capitalization. 3.3.13 Research process and Research design Findings and Discussions. 4.1 Do Indonesian listed companies have intellectual capital? 4.2 To what extent do listed Indonesian organizations disclose intellectual capital both in the amount and type of information being reported in their annual reports?..... 4.2.1 Word as unit of analysis... 4.2.2 Sentences and paragraph as unit of analyses 4.3 Do company characteristics (e.g. industry, age, ownership structure, and market capitalization) influence the frequency and intellectual capital components disclosed by sample companies?... 4.3.1 Industry 37 40 40 41 46 46 47 47 47 52 54 54 54 55 64 69 69
xi Basic Industry and Chemicals... Consumer Goods Industry. Finance... Infrastructure, Utilities, and Transportation.. Mining... Trade, Service, and Investment. 4.3.2 Age... Less than or equal to 40 years... 69 71 74 75 77 79 82 82 More than 40 years of establishment but less than 80 years of establishment.. More than or equal to 80 years of establishment 4.3.3 Ownership structure... Private-owned organizations.. State-owned organizations.. 4.3.3 Market capitalization. 84 85 87 88 88 90 Companies with market capitalization less than or equal to IDR 30.000.000.000 91 Companies with market capitalization less than or equal to IDR 60.000.000.000 but more than IDR 30.000.000.000... 92 Companies with market capitalization more than IDR 60.000.000.000 93 4.4 To what extent do research findings on intellectual capital disclosure in Indonesia have similarities to that of other
xii countries?... 94 Chapter 5 Conclusions, Recommendations, and Limitations 5.1 Conclusions. 5.2 Recommendations 5.3 Avenue for further research 5.4 Limitations.. 96 96 96 97 98 References.. 99 Appendices Appendix A... Appendix B... Appendix C... Appendix D... Appendix E... Appendix F... Appendix G... Appendix H... Appendix I... Appendix J... Appendix K... Appendix L... Appendix M.. Appendix N.. Appendix O.. 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121
xiii Appendix P... Appendix Q... Appendix R... Appendix S... Appendix T... 122 123 124 125 126
xiv List of Tables No. Table Page 2.1 Milestones a chronological review of significant contributions to the identification, measurement and reporting of intellectual capital... 14 2.2 A matrix of different value sought from intellectual capital by different kind of organization... 25 3.1 Sample of the study... 38 39 3.2 Intellectual capital components..... 42 3.3 Intellectual capital and synonyms. 44 3.4 Study samples and industry category 48 3.5 Criteria of age 48 3.6 Study samples and age categories 49 3.7 Samples study and ownership structure 50 3.8 Classification for market capitalization. 50 3.9 Samples study and market capitalization.. 51 4.1 Comparison market value and book value as of December 31 st, 2004. 55 4.2 Intellectual capital components disclosure: 2002 4004.. 56 4.3 Summary of intellectual capital disclosures: 2002 2004.. 57 4.4 Summary of intellectual capital disclosures with synonyms: 2002 2004.. 60 4.5 Intellectual capital components disclosures with synonyms: 2002
xv 2004.. 61 62 4.6 Summary of intellectual capital disclosures: 2002 2004 for Basic Industry and Chemicals. 70 4.7 Summary of intellectual capital disclosures: 2002 2004 for Private- Owned and State-Owned companies. 90
xvi List of Figures No. Figure Page 2.1 Three types of economic performance input 9 2.2 Classification of intellectual capital 18 2.3 Relations between the firm and its environment 19 3.1 Research process 52 3.2 Research design. 53
xvii List of Graphs No. Graph Page 4.1 Frequency of intellectual capital disclosures: 2002 2004. 57 4.2 Organizational capital components disclosures: 2002 2004.. 58 4.3 Human capital components disclosures 2002 2004.. 59 4.4 Relational capital components disclosure: 2002 2004.. 59 4.5 Intellectual capital disclosures with synonyms: 2002 2004.. 62 4.6 Intellectual capital disclosures vs intellectual capital disclosures with Synonyms: 2002 2004.. 63 4.7 Intellectual capital disclosures: 2002 2004 for Basic Industry and Chemicals 70 4.8 Frequency of intellectual capital disclosures: 2002 2004 for Basic Industry and Chemicals.. 71 4.9 Percentage and pattern of intellectual capital disclosures: 2003 2004 for Basic Industry and Chemicals.. 71 4.10 Intellectual capital disclosures: 2002 2004 for Consumer Goods Industry 72 4.11 Frequency of intellectual capital disclosures: 2002 2004 for Consumer Goods Industry.. 73 4.12 Percentage and pattern of intellectual capital disclosures: 2002 2004 for Consumer Goods Industry.... 73 4.13 Intellectual capital disclosures: 2002 2004 for Finance
xviii Industry 75 4.14 Frequency of intellectual capital disclosures: 2002 2004 for Finance Industry.. 76 4.15 Intellectual capital disclosures: 2002 2004 for Infrastructure, Utilities, and Transportation Industry. 76 4.16 Frequency of intellectual capital disclosures: 2002 2004 for Infrastructure, Utilities, and Transportation Industry.. 77 4.17 Intellectual capital disclosures: 2002 2004 for Mining Industry 78 4.18 Frequency of intellectual capital disclosures: 2002 2004 for Mining Industry 79 4.19 Intellectual capital disclosures: 2002 2004 for Trade, Service, and Investment Industry. 80 4.20 Frequency of intellectual capital disclosures: 2002 2004 for Trade, Service, and Investment Industry 80 4.21 Frequency of intellectual capital disclosures: 2002 2004 for companies less than or equal to 40 years age.. 83 4.22 Intellectual capital disclosures: 2002 2004 for companies less than or equal to 40 years age.. 83 4.23 Frequency of intellectual capital disclosures: 2002 2004 for companies more than 40 years of establishment but less than 80 years. 84
xix 4.24 Intellectual capital disclosures: 2002 2004 for companies more than 40 years of establishment but less than 80 years of establishment... 85 4.25 Frequency of intellectual capital disclosures: 2002 2004 for companies more than or equal to 80 years... 86 4.26 Intellectual capital disclosures: 2002 2004 for companies more than or equal to 80 years.. 86 4.27 Intellectual capital disclosures: 2002 2004 for Private Owned companies. 89 4.28 Frequency of intellectual capital disclosures: 2002 2004 for State- Owned companies... 89 4.29 Intellectual capital disclosures: 2002 2004 for companies with market capitalization less than or equal to IDR 30.000.000.000 91 4.30 Frequency of intellectual capital disclosures: 2002 2004 for companies with market capitalization less than or equal to IDR 60.000.000 but more than IDR 30.000.000.000... 92 4.31 Frequency of intellectual capital disclosures: 2002 2004 for companies with market capitalization more than IDR 60.000.000.000... 93