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Impact of firm performance and Impact of FP

and CG on
corporate governance mechanisms ICDs in CEO
statements
on intellectual capital disclosures
in CEO statements
Ghassan H. Mardini and Fathia Elleuch Lahyani Received 26 February 2020
Revised 8 July 2020
College of Business and Economics, Qatar University, Doha, Qatar Accepted 12 August 2020

Abstract
Purpose – Using agency theory and impression management theory, this study examines the impact of
financial performance (FP) and corporate governance (CG) mechanisms on the extent of intellectual capital
disclosures (ICDs) and the three components within the CEO statement – human capital (HC), structural capital
(SC) and relational capital (RC).
Design/methodology/approach – This study employs a sample of non-financial SPF-120 French listed
firms to capture the relevant variables; it collects data for 2010–2017, using a panel data technique to run the
random effects regressions.
Findings – The study finds that FP, measured using both market (Tobin’s q) and accounting (return on equity
and return on assets) indicators, plays a vital role in the extent of ICDs and the three components in the CEO
statement published by SPF-120 companies. This confirms its impact on the decision-making needs of
stakeholders. Among the CG mechanisms, this study finds that cultural diversity and gender diversity affect
some ICD components. Moreover, CEO characteristics such as age, education and role duality affect ICD, while
institutional ownership drives the extent of such disclosures.
Practical implications – Our findings have comprehensive implications for managers of French listed firms,
the Autorit
e des March
es Financiers, and stakeholders in general.
Originality/value – This study provides significant insights by investigating the impact of FP, CG and
company characteristics on the extent of the ICDs published in CEO statements.
Keywords Intellectual capital disclosures, Human capital, Structural capital, Relational capital, Financial
performance, Corporate governance
Paper type Research paper

1. Introduction
The disclosure of intellectual capital (IC) is an important factor that leads a successful firm to
achieve its objectives and contributes to knowledge in the economy (Petty and Guthrie, 2000).
Specifically, this type of disclosure shares knowledge about a company’s human
development, innovation and connections (Cabello-Medina et al., 2011; Castellano et al.,
2019). A firm illustrates its IC voluntarily, as part of its CEO statement to stakeholders
(Striukova et al., 2008). Such a disclosure helps stakeholders understand the views of
managers as well as the source and development of IC among the firm’s current and future
achievements (McCracken et al., 2018). Prior studies concluded that IC has different
components (Striukova et al., 2008; Boujelbene and Affes, 2013; Goebel, 2019; Chiu al., 2019).
However, most researchers and experts in the IC field accepted the following three
components: human capital (HC), structural capital (SC) and relational capital (RC) (Striukova
et al., 2008; Boujelbene and Affes, 2013; Ozkan et al., 2017; McCracken et al., 2018; Chiu
et al., 2019).
The literature includes empirical investigations on intellectual capital disclosures (ICDs)
by firms globally. For instance, Ozkan et al. (2017) investigated the relationship between IC Journal of Intellectual Capital
and financial performance (FP) in the Turkish banking sector. McCracken et al. (2018) and © Emerald Publishing Limited
1469-1930
Striukova et al. (2008) explored HC and IC reporting, respectively, in the United Kingdom. DOI 10.1108/JIC-02-2020-0053
JIC Muttakin et al. (2015) provided empirical evidence for IC and corporate governance (CG)
mechanisms in Bangladesh, while Yan (2017) investigated the association between ICDs in
CEO statements and CG in FTSE-100 firms. Prior studies also recognized that the FP
disclosed in annual reports contains undocumented hidden value (Eberhart et al., 2004). This
study uses both agency and impression management theories to investigate ICDs in CEO
statements in France as a source hidden FP value. Specifically, we ask the following research
questions: (1) What is the level of ICDs by non-financial SPF-120 listed firms? (2) What
relationships exist among the level of ICDs, FP (using both market and accounting indicators)
and the CG mechanisms of these firms?
Although prior studies investigated most ICD dimensions, this study tackles the subject
from different aspects. First, studies thus far only explored the relationship between ICDs and
FP (e.g. Ozkan et al., 2017), while some considered the mechanisms of ICDs and CG (e.g.
Muttakin et al., 2015; Yan, 2017). By contrast, this study investigates the interplay between
the FP and CG mechanisms and its effect on the extent of ICDs in the CEO statements of
French listed firms. Further, studies of IC examined ICDs in annual reports (Guthrie and
Petty, 2000; Sardo et al., 2018). However, the CEO statement is a crucial communication
channel that highlights a firm’s intellectual efforts and affects stakeholders’ expectations
regarding the prevalence of technologies, knowledge and skills as the primary contributors to
firm value creation. Thus, our study focuses on CEO statements. Moreover, it includes all
three ICD components (HC, SC and RC) in contrast to prior studies that examined only
individual components (e.g. Rehman et al., 2011; Tseng et al., 2013; Denicolai et al., 2015;
Nimtrakoon, 2015).
Second, the theoretical framework of this study integrates agency theory and impression
management theory to enhance its results and provide practical and theoretical implications
that verify and extend the literature on ICDs. Specifically, this study finds a relationship
between these two theories and the problems traditionally associated with ICDs in the
literature, which enables us to integrate them into the proposed model. Several factors help
reduce the impact of managers’ impression management and agency problems in ICDs,
including CG, FP and company characteristics (CC). On the one hand, we find that agency
problems affect the asymmetry of ICDs and manipulate the extent of ICD reporting to the
public. On the other hand, impression management theory considers it a skill or method that
managers (i.e. CEOs) employ for their benefit, when they manipulate ICDs, with such
manipulation becoming a serious issue for external decision-makers. Therefore, the common
link of the “manipulation” of ICDs between the two theories and the association between the
variables is a significant motivation for this study.
Third, prior studies arrived at different conclusions regarding the CG–ICD and FP–ICD
relationships, suggesting a problem in evaluating the nature of these relations. It is a valid
research motivation to consider that different cultural and business environments affect
ICDs; therefore, it is essential to use a new sample of French listed firms (SPF-120) to verify
previous findings. Few studies have investigated ICDs by large firms in the French stock
market. Among these, Boujelbene and Affes (2013) investigated the impact of ICDs on the cost
of equity capital.
Fourth, this study provides comprehensive implications for managers of French listed
firms, the Autorit
e des March
es Financiers (AMF), and stakeholders in general. It provides
empirical evidence of the relationships between the three IC components – CG mechanisms
and FP – thereby enhancing our understanding of the determinants of the IC components and
their development. For instance, this study finds that HC and RC are key factors in a firm’s
FP. The results show that the IC components have a positive and significant relation with the
FP market indicator (Tobin’s q; TQ) in the short run, whereas ICDs, HC and RC have a
negatively significant relation with one of the FP accounting indicators (return on equity;
ROE). SC has no relationship with either ROE or the other accounting indicator, return on
assets (ROA). Moreover, prior studies seldom examined the impact of CEO characteristics (i.e. Impact of FP
CEO duality) on the IC components. Further, to the best of our knowledge, no studies of IC and CG on
investigated the impact of CEO age and education on ICDs. Our study includes more CEO
characteristics (age, education and duality) as key values that attract stakeholder attention
ICDs in CEO
and enhance their satisfaction. For instance, our results suggest that firms led by older CEOs statements
with engineering majors tend to communicate more HC information. Further, CG variables
related to CEO characteristics (age and education) as well as the cultural and gender diversity
of the board constrain a firm’s HC resources. Our findings will thus help firms design
systematic ICD systems that may reduce the risks of managers’ impression management and
agency problems by improving the transparency and accountability of the firm to regulators
and stakeholders.
The remainder of the paper is as follows. Section 2 discusses the theoretical framework,
reviews the literature and develops the hypotheses. Section 3 describes the research
methodology. Section 4 presents and discusses the results of the research, while Section 5
provides the conclusions and implications of the study.

2. Theoretical framework, literature review and hypothesis development

2.1 Theoretical framework
Agency theory aims to explain the business relationship between principals (shareholders
and regulators) and agents (a firm’s managers). Accordingly, the agent is responsible for
fulfilling the tasks assigned by the principal (Fama and Jensen, 1983). Under this principal–
agent model, the separation of ownership and control among a firm’s managers and owners
causes conflicts of interest. However, the contracting parties, both shareholders and
managers, are subject to ICDs (Abhayawansa and Guthrie, 2016; Yan, 2017; McCracken et al.,
2018). Based on agency theory, weak regulation over ICDs provides managers with the
opportunity to manipulate the disclosed information in line with their own interests. Agency
theory states that managers (i.e. the CEO) have knowledge and management skills that
shareholders lack and employ such skills to frame ICDs for their own benefit. Thus, agency
theory predicts that IC is associated with higher manager–shareholder conflicts, FP, CG and
lower share value (Fama and Jensen, 1983). From an agency theory perspective, assessing the
value of IC is crucial for stakeholders (analysts, shareholders, potential investors and
employees) to reduce information asymmetry (Farooq and Nielsen, 2014; Goebel, 2019).
Farooq and Nielsen (2014) found that firms with higher ICDs encourage market participants
such as analysts to issue accurate firm valuations. However, Yan (2017) found that managers
(i.e. CEOs) usually employ their impression management skills to manipulate the views,
benefits and interests of shareholders. Clatworthy and Jones (2003) found that impression
management is used to manipulate financial and narrative disclosures to favor managers’
interests, irrespective of whether the FP is very high or low. They argued that such
manipulation misleads shareholders in their decision-making needs.
The CEO statement allows CEOs to interact with stakeholders to transmit optimism and
confidence in a dynamic environment (Peck and Hogue, 2018). Johnson et al. (2015) discussed
the effects of the psychological characteristics of CEOs on their choices when considering
innovation. They found that CEOs’ decisions depend on whether they are promotion- or
prevention-focused. Career development and self-promotion are important incentives that
may explain why CEOs adopt impression management strategies. Thus, CEOs intentionally
focus on IC information in the CEO statement to highlight their efforts and project an image of
self-confident leadership, to improve their future career opportunities (Leung et al., 2015).
Prior studies employed impression management theory and/or agency theory to examine
the impact of FP and CG on ICDs. This study investigates the interplay of both FP and the CG
mechanisms on ICDs in the CEO statement. Hence, this interplay adds a connection to
JIC construct the theoretical framework using both agency and impression management
theories. In other words, the findings of prior studies vary, based on different adopted
theories. This current study integrates both agency and management impression theories to
investigate this variation across the two theories. In reality, many managers do not prioritize
stakeholders’ interests; instead, they enhance their own benefits using impression
management skills to maximize profit, avoid agency problems and manipulate
shareholders’ perceptions of the firm (Clatworthy and Jones, 2003; Li et al., 2008; Hidalgo
et al., 2011; Abhayawansa and Guthrie, 2016; Yan, 2017; McCracken et al., 2018). In addition,
the benefits that managers receive from shareholders do not satisfy them; thus, a conflict may
occur between principals (shareholders) and agents (managers). Therefore, agency problems
affect ICD asymmetry. The research model adopted in this study successfully integrates the
perspectives of these two theories (see Figure 1 of Section 3.2).

2.2 Literature review and hypothesis development

Prior studies defined IC in many ways. For instance, IC is “the intangible assets which are not
listed explicitly on a firm’s balance sheets but positively impact the performance and success
of it” (Ozkan et al., 2017, p. 191). IC is also “the intellectual, or knowledge-based, resources of
an organization” (Striukova et al., 2008, p. 298). IC has three main components. HC covers the
human resources of the firm, namely, employees’ skills, capabilities, experience, safety and
development (Morris, 2015). Therefore, HC is the most valuable asset in a firm (Cabello-
Medina et al., 2011). SC relates to the firm’s system, structure, internal network and R&D
plans. SC represents the ability of a firm to satisfy its shareholders’ values and requirements
(Guthrie and Petty, 2000); this ability improves through technology and the development of

Corporate Governance Mechanisms

CEO age
CEO education
CEO duality
Gender diversity
Cultural diversity
Board independence
Board size
Board meetings
Agency
Theory

Intellectual Capital disclosure

Demonstrate a H4
Firm Performance theoretical integration
Tobin’s Q to the extent of ICDs
ROE (see section 2.1)
H1 Human Capital
ROA H2 Structural capital
H3 Relational capital

Impression
Management
Theory
Company Characteristics
Institutional ownership
Productivity
Firm size
Figure 1. Leverage
The research model Liquidity
the internal structure of the firm. Finally, RC refers to the firm’s relationship with customers/ Impact of FP
collaborators, market information, agreements and reputation; in other words, it measures and CG on
the loyalty of these parties to the firm (Mondal and Gosh, 2012).
2.2.1 ICDs and CG mechanisms. Following prior studies of IC, the selected CG mechanisms
ICDs in CEO
are as follows: board size, board meetings, board gender diversity, board cultural diversity, statements
board independence and CEO duality [1]. Previous studies of the impact of CG mechanisms
and voluntary financial and non-financial disclosures commonly included board
independence, board size and CEO duality (Li et al., 2008; Hidalgo et al., 2011). Recent
studies added gender and cultural diversity, with mixed findings about their impact on a
firm’s voluntary disclosures (e.g. Tejedo-Romero et al., 2017; Almor et al., 2019). Cerbioni and
Parbonetti (2007) found that board size, meetings and independence have a positive impact on
ICDs. Li et al. (2008) found a significant positive association between gender and cultural
diversity with ICDs, but no significance in relation to CEO duality. Hidalgo et al. (2011)
confirmed the findings of Li et al. (2008) that ICDs and CEO duality are not significantly
associated, also finding a negative association between gender and cultural diversity with
ICDs. Moreover, Al-Musalli and Ismail (2012) examined the impact of CG mechanisms on
ICDs in the Gulf Cooperation Council countries, finding a negative impact of independent
directors on ICDs. They recommended that independent directors and other external factors
should not interfere with ICDs.
To the best of our knowledge, no prior studies of IC investigated the impact of CEO age
and education on ICDs. Recent studies of CG mechanisms argued that CEO age and education
are useful variables for enhancing our understanding of firms’ disclosure policies and
performance (Chng et al., 2015; Chen, 2020; Lee et al., 2020; Mun et al., 2020). For instance, Chen
(2020) found that CEO age and education are positively and significantly related to firms’
innovation outcomes. Theoretically, studies that adopted impression management theory
have shown that CEOs’ traits such as age (Chng et al., 2015; Lee et al., 2020) and education
(Chiu et al., 2019) may determine their professional career and affect firm performance. Thus,
to enhance our understanding of the ICD pattern in CEO statements, this study adds CEO age
and education as CG mechanisms. Specifically, our study contributes to extant literature on
the effect of CEO stereotypes related to age, education and duality on the extent of ICDs.
It uses these CG mechanisms as control variables across the FP market (TQ) and
accounting (ROE and ROA) indicators. Thus, the discussion of the aforementioned control
variables overviews some of the ICDs and CG mechanisms demonstrated by prior studies.
Further, this study does not develop any hypothesis in relation to the control variables.
2.2.2 ICDs and firm performance: hypothesis development. IC shapes business success,
knowledge management and investment attractiveness (Guthrie and Petty, 2000), while
a strong commitment by loyal HC enhances the effectiveness of a firm’s operations and
maximizes its profits (Eberhart et al., 2004). Prior studies investigated the impact of FP
on HC using a market indicator (TQ) (Johnson, 1999; Firer and Williams, 2003; Eberhart
et al., 2004; Striukova et al., 2008; Maditinos et al., 2011; Rehman et al., 2011; Ahangar,
2011; Tseng et al., 2013; Boujelbene and Affes, 2013; Morris, 2015; Nimtrakoon, 2015;
Abhayawansa and Guthrie, 2016). They found that FP has a positive impact on HC. For
instance, Rehman et al. (2011) found that FP has a positive impact on ICDs. More
recently, Morris (2015) examined the impact of the FP proxy of TQ on HC across
financial and non-financial firms, finding a positive and significant impact of their
association. Thus, we hypothesize:
H1a. FP (TQ) has a positive impact on HC (Model 2).
H1b. FP (ROE) has a positive impact on HC (Model 6).
H1c. FP (ROA) has a positive impact on HC (Model 10).
JIC SC represents the capability of the internal system (i.e. strategy and structure) of the firm to
achieve its goals and maximize profit (Johnson, 1999; Janosevi
c and Dzenopoljac, 2012).
A firm that has a solid system has higher prospects of achieving its goals (Ahangar, 2011;
Denicolai et al., 2015). Previous studies of the impact of FP on SC used TQ as a proxy (Rehman
et al., 2011; Ahangar, 2011; Janosevi
c and Dzenopoljac, 2012; Tseng et al., 2013; Denicolai et al.,
2015; Nimtrakoon, 2015; Chiu et al., 2019), finding mixed results. Tseng et al. (2013) found a
positive and significant impact of FP on SC. However, FP has a negative influence on R&D, a
type of SC, because it drains firms’ profits. R&D costs are unlikely to lead to new and
innovative products in the long run. Moreover, Nimtrakoon (2015) found that FP has no
relationship with the SC of Malaysian firms, while it has a negative impact on firms in the
Philippines. This leads to the conclusion that SC is highly dependent not only on the firm’s
system but also on the business environment and country’s regulations. Thus:
H2a. FP (TQ) has a negative impact on SC (Model 3).
H2b. FP (ROE) has a negative impact on SC (Model 7).
H2c. FP (ROA) has a negative impact on SC (Model 11).
RC represents the knowledge and experience of relationships with stakeholders such as
customers, and covers brands, licenses, marketing and network information (Johnson,
1999). In disclosing RC information, CEOs may search for economic benefits such as
reducing their stock volatility, by developing investor confidence in IC resources, allied
to RC (Biscotti and D’Amico, 2016). Again, prior studies found a positive impact of the
firm’s FP (TQ) on RC (Maditinos et al., 2011; Ahangar, 2011; Janosevi
c and Dzenopoljac,
2012; Tseng et al., 2013; Yang and Zhao, 2014; Denicolai et al., 2015; Nimtrakoon, 2015;
Dzenopoljac et al., 2016; Abhayawansa and Guthrie, 2016). For instance, Yang and Zhao
(2014) concluded that firms’ FP is better under well-established exogenous RC
disclosures. Dzenopoljac et al. (2016) found that a firm’s FP is stable within
customers’ loyalty programs because of networking with its main stakeholders.
However, Sardo and Serrasqueiro (2017) found that the association between RC and FP
is insignificant. Hence,
H3a. FP (TQ) has a positive impact on RC (Model 4).
H3b. FP (ROE) has a positive impact on RC (Model 8).
H3c. FP (ROA) has a positive impact on RC (Model 12).
Finally, this study examines the three components (HC, SC and RC) disclosed in the CEO
statement and overall ICDs. Thus,
H4a. FP (TQ) has a positive impact on ICDs (Model 1).
H4b. FP (ROE) has a positive impact on ICDs (Model 5).
H4c. FP (ROA) has a positive impact on ICDs (Model 9).
We develop the research hypothesis logically to attain the current research objectives.
The study models test all of the hypotheses within the theoretical framework
integration with both agency and impression management theories. Moreover, few
studies investigate ICDs in the French business environment. Boujelbene and Affes
(2013) is the only exception, and they investigate the impact of ICDs on the cost of
equity capital. Thus, this current study utilizes an interesting approach that extends the
literature in the IC field, bridging the gap in the literature and contributing to
knowledge of ICDs.
3. Research methodology Impact of FP
3.1 Sample and CG on
This study considers SPF-120 listed firms in France for two reasons. First, few studies have
investigated the interplay of ICDs, CG and FP in the SPF-120, which has the most efficient,
ICDs in CEO
active and capitalized stock market value in Europe (Boujelbene and Affes, 2013). Second, statements
investigating SPF-120 firms can offer great insights, as these are well-established firms with
a variety of operations. To test the research hypotheses, we exclude SPF-120 firms in the
financial industry (8) from the final sample as well as firms (46) with missing CEO statements.
Thus, the final sample comprises non-financial firms that include their CEO statements in
their annual reports from 2010 to 2017; this yields a final sample of 66 firms with 528
observations across the eight-year period. This study thus adopts a balanced panel data set
approach. Table 1 classifies sample firms according to the Global Industry Classification
Standard. We extract financial and governance data from the Thomson Reuters database. To
enhance the credibility of the sampling process, we hand-collect missing observations for the
FP and CG variables from the registration documents of firms [2] and annual reports
available on the AMF website (www.amf-france.org) or the firm’s website.

3.2 Variables and research model

3.2.1 Dependent variable. Following the IC literature (Bellora and Guenther, 2013; Sardo and
Serrasqueiro, 2017; Ahangar, 2011; Rehman et al., 2011; Nimtrakoon, 2015; Abhayawansa and
Guthrie, 2016; Tejedo-Romero et al., 2017), this study employs a disclosure index approach to
calculate the ICDs for stakeholders’ decision-making needs in general, without emphasizing a
particular stakeholder. Following ICD studies, Appendix lists the 36 items of the three IC
components. Moreover, this study adopts an unweighted approach that assigns a similar
weight for each IC item analyzed. This common approach provides disclosure items with an
equal level of importance, which helps avoid unforeseen subjectivity in the analysis (Cooke,
1989). Specifically, we give a score of 1 if the item is disclosed in the CEO statement, and
0 otherwise. We calculate the ICD indices (HC, SC and RC) and the overall ICDs for a firm as
follows:
Ph
j¼1 djit
HCit ¼ (1)
M
Ps
j¼1 djit
SCit ¼ (2)
M

GICS sectors Sample Firms per sector (%)

Energy 3 4.55
Materials 7 10.61
Industrials 13 19.70
Consumer staples 16 24.24
Consumer discretionary 7 10.61
Health care 6 9.09
Communication services 5 7.58
Information technology 5 7.58
Utilities 1 1.52
Real estate 3 4.55 Table 1.
Total 66 %100 Final sample
 Pr
JIC j¼1 djit
RCit ¼ (3)
M
ICDsit ¼ HCit þ SCit þ RCit ; (4)

where djit is the score conferred on each IC item (1 if the item is disclosed, and 0 otherwise), and
h, s and r represent the number of IC items disclosed in the HC, SC and RC categories,
respectively. M is the total number (36) of IC items.
3.2.2 Independent variables. This study examines the effect of a firm’s FP on ICDs using a
market FP proxy, TQ and two accounting FP proxies, namely, ROE and ROA. It also includes
several control variables that theoretically affect ICDs, following prior studies. Table 2
presents the variables. Specifically, the CG variables are gender diversity, board
independence, cultural diversity, CEO duality, board size and board meetings.
CEO age is the difference between the CEO’s birth year and fiscal year in the study period
(2010–2017) (Chng et al., 2015; Lee et al., 2020). The CEO education proxy is a dummy variable
coded 1 if the CEO majored in engineering, and 0 otherwise (Chen, 2020; Mun et al., 2020). To
the best of our knowledge, our study is the first to add CEO age and education to its CG
mechanisms as determinants of ICDs. Moreover, CC includes the firm’s productivity, size,
leverage, liquidity and institutional ownership.

Variable Definition

Intellectual capital
ICDs Intellectual capital disclosure index (Appendix)
HC Human capital index (Appendix)
SC Structural capital index (Appendix)
RC Relational capital index (Appendix)
Financial performance
TQ Tobin’s q corresponds to market capitalization plus long-term debt divided by the
book value of total assets
ROE Ratio of net income to shareholders’ equity
ROA Ratio of net income to total assets
Governance
CEO age CEO age in years
CEO education Dummy variable that scores a value of 1 if the CEO’s education is major in engineering,
and 0 otherwise
CEO duality Dummy variable which takes a value of 1 if CEO is the board chairperson, and
0 otherwise
Board independence Ratio of number of independent non-executive directors to total number of directors
Gender diversity Ratio of number of female directors to total number of directors
Cultural diversity Ratio of number of foreign directors to total number of board directors
Board size Total number of board members per year
Board meetings Total number of board meetings per year
Company characteristics
Institutional Ratio of shares owned by institutions to total shares outstanding
ownership
Productivity Ratio of revenue to total assets
Firm size Logarithm of total assets
Table 2. Leverage Ratio of total liabilities to total assets
Variables definition Liquidity Difference between current assets and current liabilities divided by total assets
 3.2.3 Research model. Figure 1 illustrates the research model following the theoretical Impact of FP
framework, which integrates agency theory and impression management theory (see Section and CG on
2.1), and the variables used in our investigation of the impact of FP and the CG mechanisms
on the extent of ICDs in CEO statements.
ICDs in CEO
We employ tests to enhance the reliability and validity of the research model [3]. First, statements
although the variables show some correlation (see Table 4), the variance inflation factor
(VIF) is below two for all the independent variables (see Table 3) [4]. Second, the Breusch–
Pagan and Lagrange multiplier test statistics, along with their associated probabilities
(Prob > χ 2 5 0.00) (see Tables 5 and 6), provide evidence that random effects regression is
more appropriate than OLS regression. Third, as the Hausman statistics have high p-values
(p > 0.05) (see Tables 5 and 6), we conclude that random effects regression rather than fixed
effects regression is adequate for this study (Wooldridge, 2010). Random effects regression
is suitable for time-invariant variables, and thus adequate for tackling the research
questions, interpreting the regression equations and controlling for the time effect in
this study.
To test the hypotheses, we develop 12 multiple regression models as follows:
ICDsit ¼ α þ β1 TQit þ β2 board governanceit þ β3 Zit þ β4 Yeart þ εit (Model 1)
HCit ¼ α þ β1 TQ it þ β2 board governanceit þ β3 Zit þ β4 Yeart þ εit (Model 2)
SCit ¼ α þ β1 TQit þ β2 board governanceit þ β3 Zit þ β4 Yeart þ εit (Model 3)
RCit ¼ α þ β1 TQit þ β2 board governanceit þ β3 Zit þ β4 Yeart þ εit (Model 4)
ICDsit ¼ α þ β1 ROEit þ β2 board governanceit þ β3 Zit þ β4 Yeart þ εit (Model 5)
HCit ¼ α þ β1 ROEit þ β2 board governanceit þ β3 Zit þ β4 Yeart þ εit (Model 6)
SCit ¼ α þ β1 ROEit þ β2 board governanceit þ β3 Zit þ β4 Yeart þ εit (Model 7)

Mean SD Minimum Maximum VIF for ICDs models

ICDs 0.74 0.11 0.27 0.97

HC 0.46 0.17 0.06 1
SC 0.92 0.11 0.4 1
RC 0.84 0.11 0.1 1
TQ 1.31 1.86 0.003 16.14 1.14
ROE 0.11 0.2 0.76 1.63 1.17
ROA 0.04 0.09 0.75 0.7 1.08
CEO age 55.7 7.05 40 78 1.06 1.06 1.06
CEO education 0.45 0.49 0 1 1.05 1.05 1.07
CEO duality 0.56 0.49 0 1 1.1 1.09 1.12
Gender diversity 0.27 0.12 0 0.55 1.8 1.77 1.8
Cultural diversity 0.23 0.22 0 0.94 1.06 1.06 1.09
Board independence 0.49 0.19 0.125 1 1.21 1.27 1.21
Board size 12.28 3.16 3 20 1.45 1.47 1.46
Board meetings 8.33 2.36 2 20 1.13 1.14 1.15
Institutional ownership 0.37 0.26 0.001 0.96 1.12 1.16 1.13
Productivity 0.66 0.45 0.02 3.6 1.07 1.07 1.08
Firm size 9.15 1.58 4.51 13.2 1.76 1.7 1.82
Leverage 0.19 0.13 0 0.59 1.11 1.14 1.16 Table 3.
Liquidity 1.31 0.64 0.21 7.6 1.07 1.28 1.48 Descriptive statistics
 JIC

Table 4.
Correlation matrix
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

1 ICDs 1
2 HC 0.08* 1
3 SC 0.04 0.13* 1
4 RC 0.004 0.16* 0.55* 1
5 TQ 0.03* 0.11* 0.06 0.1* 1
6 ROE 0.11* 0.007 0.01 0.03 0.1* 1
7 ROA 0.01 0.02 0.02 0.008 0.13* 0.008 1
8 CEO age 0.007 0.17* 0.07 0.01 0.03 0.05 0.03 1
9 CEO 0.02 0.23* 0.05 0.04 0.06 0.01 0.13* 0.06 1
education
10 Duality 0.12* 0.02 0.13* 0.05 0.05 0.04 0.01 0.005 0.006 1
11 Gender 0.03 0.02 0.05 0.04 0.07 0.04 0.09* 0.09* 0.05 0.03 1
diversity
12 Cultural 0.22* 0.07 0.06 0.03 0.06 0.03 0.03 0.03 0.05 0.02 0.1* 1
diversity
13 Board 0.04 0.03 0.02 0.02 0.02 0.17* 0.04 0.13* 0.07 0.11* 0.13* 0.07 1
independence
14 Board size 0.01 0.08 0.07 0.14* 0.01 0.18* 0.03 0.01 0.02 0.16* 0.07 0.07 0.09* 1
15 Board 0.12* 0.03 0.1* 0.05 0.04 0.12* 0.01 0.04 0.06 0.05 0.04 0.05 0.05 0.04 1
meetings
16 Ownership 0.02 0.01 0.02 0.03 0.05 0.11* 0.09* 0.01 0.04 0.26* 0.1* 0.03 0.23* 0.002 0.01 1
17 Productivity 0.02 0.1* 0.13* 0.28* 0.01 0.02 0.09 0.1* 0.05 0.05 0.04 0.13* 0.01 0.005 0.08* 0.1* 1
18 Firm size 0.12* 0.09* 0.08 0.09 0.25* 0.12* 0.11* 0.03 0.03 0.2* 0.11* 0.06 0.14* 0.51* 0.21* 0.05 0.3* 1
19 Leverage 0.02 0.06 0.04 0.01 0.08* 0.12* 0.06 0.07 0.05 0.001 0.03 0.13* 0.06 0.02 0.13* 0.05 0.22* 0.06 1
20 Liquidity 0.03 0.03 0.002 0.09* 0.18* 0.01 0.03 0.02 0.04 0.09* 0.06 0.03 0.25* 0.12* 0.07 0.07 0.02 0.38* 0.18* 1
Note(s): ICDs, HC, SC and RC refer to intellectual capital disclosure, human capital, structural capital and relational capital, respectively. * indicates significance at the
5% level
 Model
Impact of FP
1:ICDs Model 2: HC Model 3:SC Model 4: RC and CG on
ICDs in CEO
TQ 0.003 0.004 0.004 0.01
0.003*** 0.001*** 0.008*** 0.00*** statements
CEO age 0.0001 0.004 0.001 0.001
0.87 0.00*** 0.03** 0.4
CEO education 0.005 0.07 0.004 0.003
0.72 0.00*** 0.65 0.84
CEO duality 0.01 0.003 0.03 0.02
0.34 0.84 0.001*** 0.06*
Gender diversity 0.05 0.11 0.005 0.08
0.24 0.03** 0.9 0.33
Cultural diversity 0.04 0.09 0.023 0.01
0.03** 0.007*** 0.3 0.77
Board independence 0.01 0.01 0.01 0.03
0.61 0.67 0.11 0.49
Board size 0.0007 0.001 0.003 0.002
0.72 0.59 0.006*** 0.49
Board meetings 0.0006 0.0008 0.004 0.002
0.95 0.96 0.01** 0.72
Institutional ownership 0.03 0.001 0.05 0.08
0.06* 0.96 0.02** 0.01**
Productivity 0.0007 0.0001 0.005 0.0002
0.00*** 0.68 0.00*** 0.00***
Firm size 0.003 0.003 0.006 0.001
0.48 0.96 0.18 0.51
Leverage 0.01 0.12 0.004 0.11
0.82 0.03** 0.93 0.06*
Liquidity 0.006 0.01 0.015 0.03
0.25 0.4 0.01** 0.01**
Adjusted R2 0.198 0.3602 0.365 0.286
Hypothesis Status H4a: A H1a: A H2a: A H3a: A
Hausman test (prob > χ 2) 16.6 (0.73) 18.7 (0.6) 11.17 (0.95) 12.38 (0.92)
Breusch–Pagan Lagrange multiplier test 720.2 (0.00) 615.08 (0.00) 685.1 (0.00) 642.7 (0.00)
Table 5.
(prob > chibar2) ICDs and FP regression
Note(s): ICDs, HC, SC and RC correspond to intellectual capital disclosure, human capital index, structural analysis (market
capital index and relational capital index, respectively. The p-values are in italic. ***, **, * indicate significance indicator proxy by
at 1%, 5% and 10% levels, respectively. A refers to accept the hypothesis; R refers to reject the hypothesis TQ) (N 5 528)

RCit ¼ α þ β1 ROEit þ β2 board governanceit þ β3 Zit þ β4 Yeart þ εit (Model 8)

ICDsit ¼ α þ β1 ROAit þ β2 board governanceit þ β3 Zit þ β4 Yeart þ εit (Model 9)
HCit ¼ α þ β1 ROAit þ β2 board governanceit þ β3 Zit þ β4 Yeart þ εit (Model 10)
SCit ¼ α þ β1 ROAit þ β2 board governanceit þ β3 Zit þ β4 Yeart þ εit (Model 11)
RCit ¼ α þ β1 ROAit þ β2 board governanceit þ β3 Zit þ β4 Yeart þ εit (Model 12)

Here, ICDsit, HCit, SCit and RCit correspond to the ICD, HC, SC and RC indices, respectively. FP
includes TQ, ROE and ROA. Board governanceit refers to the CG variables, namely, board
independence, gender diversity, cultural diversity, board size, board meetings and CEO
characteristics such as duality, age and education. Zt corresponds to the CC vector, which
includes firm size, institutional ownership, productivity, liquidity and leverage.
 JIC

ROE and
Table 6.

ROA) (N 5 528)
indicators proxy by
analysis (accounting
ICDs and FP regression
Model 5: ICDs Model 6: HC Model 7: SC Model 8: RC Model 9: ICDs Model 10: HC Model 11: SC Model 12: RC

ROE 0.02 0.05 0.01 0.07

0.06* 0.05* 0.58 0.02**
ROA 0.02 0.03 0.02 0.02
0.32 0.23 0.72 0.74
CEO age 0.0001 0.002 0.001 0.001 0.0006 0.004 0.001 0.001
0.83 0.00*** 0.03** 0.39 0.94 0.00*** 0.03** 0.41
CEO education 0.005 0.07 0.005 0.01 0.003 0.07 0.004 0.007
0.72 0.00*** 0.49 0.4 0.79 0.00*** 0.62 0.7
Duality 0.01 0.004 0.03 0.01 0.01 0.004 0.03 0.02
0.31 0.83 0.002*** 0.58 0.3 0.8 0.002*** 0.18
Gender diversity 0.04 0.1 0.02 0.004 0.04 0.11 0.007 0.04
0.29 0.06* 0.83 0.9 0.29 0.04** 0.86 0.56
Cultural diversity 0.03 0.08 0.001 0.01 0.04 0.08 0.001 0.01
0.05* 0.01*** 0.95 0.78 0.04** 0.01*** 0.95 0.7
Board independence 0.01 0.02 0.01 0.03 0.01 0.02 0.04 0.03
0.67 0.55 0.53 0.54 0.67 0.62 0.12 0.54
Board size 0.004 0.002 0.004 0.002 0.001 0.003 0.003 0.002
0.84 0.56 0.01** 0.46 0.6 0.35 0.009*** 0.48
Board meetings 0.0008 0.00005 0.004 0.007 0.0007 0.001 0.003 0.0006
0.92 0.97 0.01** 0.71 0.96 0.95 0.008*** 0.75
Institutional ownership 0.03 0.002 0.07 0.07 0.03 0.007 0.05 0.07
0.06* 0.93 0.007*** 0.01** 0.08* 0.8 0.03** 0.00***
Productivity 0.0008 0.0002 0.008 0.0002 0.0008 0.0003 0.0005 0.0002
0.00*** 0.02** 0.02** 0.00*** 0.00*** 0.98 0.00*** 0.00***
Firm size 0.0007 0.003 0.007 0.002 0.0007 0.004 0.005 0.003
0.85 0.57 0.29 0.93 0.87 0.5 0.24 0.59
Leverage 0.01 0.11 0.029 0.14 0.005 0.11 0.03 0.0008
0.78 0.05* 0.62 0.03** 0.91 0.04** 0.95 0.99
Liquidity 0.005 0.01 0.01 0.02 0.006 0.01 0.01 0.01
0.34 0.45 0.03** 0.03** 0.24 0.36 0.01** 0.49
Adjusted R2 0.215 0.3167 0.363 0.2347 0.173 0.315 0.2104 0.2256
Hypothesis status H4b: R H1b: R H2b: R H3b: R H4b: R H1b: R H2b: R H3b: R
Hausman test (prob > χ 2) 17.9 (0.65) 20.02 (0.18) 16.81 (0.72) 15.66 (0.67) 16.4 (0.74) 16.4 (0.71) 9.72 (0.95) 10.9 (0.92)
Breusch–Pagan Lagrange multiplier test 705.6 (0.00) 619.8 (0.00) 635.6 (0.00) 616,3 (0.00) 737.5 (0.00) 751.2 (0.00) 714.5 (0.00) 664.6 (0.00)
(prob > chibar2)
Note(s): p-values are in italic. ***, **, * indicate significance at 1%, 5% and 10% levels, respectively. A and R refer to accept and reject the hypothesis, respectively
4. Results and discussion Impact of FP
4.1 Descriptive and correlation statistics and CG on
Table 3 displays the descriptive statistics, namely, the mean, minimum, maximum and
standard deviation. ICDs range from 0.27 to 0.97, thus providing sufficient variability. The
ICDs in CEO
average value of ICDs is 0.74, indicating that the majority of sample firms include IC statements
information in their CEO statement. The HC, SC and RC indices show means of 0.46, 0.92 and
0.84, respectively. Considering the mean of overall ICDs, this study suggests that CEO
enthusiasm to report narrative IC components in the CEO statement is easy to understand, as
it expresses the CEO’s intention to highlight the firm’s IC resources for a broad range of
stakeholders. Moreover, Table 3 shows a higher TQ mean (1.31) than that of ROE and ROA
(0.11 and 0.04, respectively).
In terms of the CG statistics, mean CEO duality is 56%, with CEOs having a mean age of
55.7 years, and 45% major in engineering. Board size varies from 3 to 20, with a mean value of
12 directors, of whom 49% are independent. Board meetings range from 2 to 20 per year, with
a mean frequency of 8 meetings. Although the mean value for cultural diversity is 23%, we
find a wide variation, ranging from 0% to 94%. The sample in this study, which comprises
mainly actively traded stocks, shows low mean leverage (0.19) and relatively high
productivity (0.66) and liquidity (1.31). Average institutional ownership is 37%.
Table 4 presents the correlation analysis. The results show that ICDs significantly
correlate with the market performance measure (TQ), cultural diversity, CEO duality, board
meetings and firm size (p < 0.05). The relation between ICDs and the accounting performance
measure of ROE is negative and statistically significant (p < 0.05).

4.2 Analysis of ICDs, FP and CG

4.2.1 ICDs and FP (market indicator: TQ). This subsection examines the impact of FP on
ICDs using Models 1–4. Table 5 presents the results of this analysis. In general, these four
random effects models seem to have a good fit, as they explain an acceptable proportion of
the independent variables’ impact on ICDs and its components, with an adjusted R2
ranging from 19.8% to 36.5%. Tejedo-Romero et al. (2017) reported adjusted R2 values
between 2.5% and 24%.
Model 1 relates ICDs to TQ, controlling for the CG mechanisms and CC. The TQ
coefficient (β 5 0.003, p < 0.01) is positively and significantly related to IC, thereby
providing strong support for H4a. This finding suggests that ICD, which denotes the
knowledge-based vision of the firm, is positively related to its performance. Firms with a
higher TQ are likely to disclose more IC information in their CEO statement. Thus, CEOs
emphasize IC because of its usefulness in the decision-making process for internal and
external users (Farooq and Nielsen, 2014; Goebel, 2019). This evidence is consistent with
the IC literature (Ahangar, 2011; Rehman et al., 2011; Nimtrakoon, 2015; Abhayawansa and
Guthrie, 2016; Sardo and Serrasqueiro, 2017). From the perspective of impression
management theory, higher firm value explains a CEO’s incentive to increase the extent of
ICDs, as a higher TQ would convey the picture of better IC investment decisions to
financial markets, which increases the confidence of market participants such as investors
(Biscotti and D’Amico, 2016; Yan, 2017). Given the strategic importance of IC to
stakeholders, impression management theory advocates that disclosing more IC
information may reflect the effectiveness of the management of a firm’s IC resources
(Nielsen, 2019), indicating self-confident leadership with high competencies (Leung et al.,
2015; Peck and Hogue, 2018). Meanwhile, prior studies argued, based on agency theory,
that the relation between firms’ knowledge resources and FP is due to innovation and their
competitive advantage. Thus, higher ICDs may result in lower information asymmetry
and higher transparency (Tejedo-Romero et al., 2017).
JIC Table 5 shows the three sub-indices of HC, SC and RC, analyzed in Models 2, 3 and 4. The
HC model shows a positive relationship (β 5 0.004, p < 0.01) between HC and TQ in Model 2.
Indeed, HC reflects employee competencies and a firm’s ability to recruit and retain talented
people to enhance its performance (Abhayawansa and Guthrie, 2016). Specifically, we find
that HC resources, which include knowledge, expertise, skills, experience, competencies,
creativity, teamwork, loyalty, training and education, problem-solving skills, motivation and
attitude, are positively related to a firm’s performance, supporting H1a (Rehman et al., 2011;
Morris, 2015). In previous studies of impression management theory, scholars argued that the
main incentive behind disclosing more HC information is to affect stakeholders’ perception of
a firm’s growth (Farooq and Nielsen, 2014; Mohamed et al., 2019). This concurs with the
argument that firms investing in employee competencies are likely to enhance their ability to
improve future performance as well as their organizational processes, products and services
(Sardo and Serrasqueiro, 2017).
Model 3 shows the results of the association between SC and TQ after controlling for the
CG and CC variables. The coefficient on TQ is negative (β 5 0.004, p < 0.01) and statistically
significant, which supports H2a, assuming that higher FP induces less SC disclosure. These
results agree with those of some prior studies (Farooq and Nielsen, 2014; Schiemann et al.,
2015). Tseng et al. (2013) found that FP has a negative influence on R&D (a type of SC). This is
consistent with Jia’s (2019) argument that a firm’s innovation strategy drives its disclosure
practices. As exploratory firms determinedly search for new technologies, they may show
conservative disclosure practices, fearing that their unsuccessful research activities may
influence future performance (Jia, 2019). In line with this argument, the risk of a competitive
disadvantage may encourage CEOs of firms with higher profitability to withhold key IC
value drivers related to creativity, knowledge and future research plans (Biscotti and
D’Amico, 2016). Thus, this study concludes that SC should have further exposure to
determine its efficiency, rather than the firm’s FP. In particular, SC may result in a
competitive disadvantage for the firm, as it may disclose its strategies. Moreover, the
business environment and degree of market competition play important roles in disclosing
SC, in the eyes of the management (i.e. the CEO) (Nimtrakoon, 2015). Further, R&D acts to
constrain FP, as it requires further costs to be incurred in the future. Theoretically, this result
indicates that CEOs of firms with a higher TQ are willing to expand their firm’s information
systems, intellectual property and R&D. Thus, from the impression management
perspective, CEOs select and adjust SC information in terms of the challenges of their
environment (Nimtrakoon, 2015). Moreover, Leung et al. (2015) argued that management
selectively presents information to conceal SC information and reveals narrative information
in a particular manner to impress stakeholders.
Model 4 assesses whether FP affects RC. In alignment with prior studies, we find that the
association between the RC index and FP (β 5 0.01, p < 0.01) is positive and statistically
significant, which supports H3a. Thus, higher FP reduces the agency problems of RC
information in the CEO statement, which decreases information asymmetry. Specifically, our
findings suggest that CEOs of firms with higher FP based on a market indicator are likely to
stress distinctive RC resources such as firm brands, distribution channels and networks with
the firm’s main stakeholders as well as customer loyalty for a range of stakeholders.
Moreover, our RC results are in line with those of previous studies (Yang and Zhao, 2014;
Denicolai et al., 2015; Nimtrakoon, 2015; Dzenopoljac et al., 2016; Abhayawansa and Guthrie,
2016; Sardo and Serrasqueiro, 2017). For instance, Sardo and Serrasqueiro (2017) found that
RC involves developing firm relationships with a company’s environment, namely, its
customers, suppliers and partners. They considered RC to be a key factor in driving a firm’s
growth and wealth in the long term. In terms of disclosing RC information in the CEO
statement, we suggest that CEOs search for economic benefits such as developing investor
confidence through the RC resources of the firm in the long term. Our suggestion aligns with
the conclusion of Leslie and Holloway (2006), who underlined the learning effect in acquiring Impact of FP
relational knowledge in the long run [5]. and CG on
4.2.2 ICDs: CG and CC. In terms of the CG mechanisms, Table 5 shows that CEO age,
education and duality all have a significant impact on the extent of the IC components
ICDs in CEO
disclosed in the CEO statement. In terms of CEO age, the results (β 5 0.004, p < 0.01) of statements
Model 2 suggest that younger CEOs tend to disclose less HC information on employees’
competencies because they are apprehensive of losing their firms’ competitive advantage
within dynamic business environments. Moreover, the CEO age coefficient (β 5 0.001,
p < 0.05) in Model 3 suggests that older CEOs are likely to increase the extent of SC
information to underscore their contribution to developing their firms’ innovation resources.
In relation to CEO education, our evidence shows that a major in engineering (β 5 0.07,
p < 0.01; Model 2) plays an important role in HC disclosure decisions. These results align with
those of previous CG studies finding that a CEO’s profile and power determine his/her
professional career as well as FP (i.e. Chiu et al., 2019).
On the contrary, we find that CEO duality exerts a significant negative effect on both SC
(β 5 0.03, p < 0.01; Model 3) and RC (β 5 0.02, p < 0.1; Model 4). These findings suggest
that the duality of the functions of the CEO and chairperson of the board is likely to reduce the
extent of SC and RC disclosures in the CEO statement. This, in turn, reveals less information
to stakeholders about their firm’s innovation and customer capital; our evidence, thus,
highlights CEOs’ sensitivity to knowledge-based resources. In accordance with impression
management theory, the duality results shed light on the sensitivity of CEOs to knowledge-
based intellectual resources; accordingly, CEOs with duality may reduce SC and RC
information to increase their confidence in the long term. Similarly, Gul and Leung (2004)
found that the separation of the functions of the chairperson and CEO enhances the voluntary
disclosure of SC and RC. Models 1 and 2 show the insignificant impact of CEO duality on the
extent of ICDs and HC information disclosed voluntarily in CEO statements. Our findings
agree with those of Hidalgo et al. (2011), who showed that duality does not determine
ICD level.
Second, we find that the effect of cultural diversity (β 5 0.04, p < 0.05) on ICDs is
positive and significant (Model 1), suggesting that a higher proportion of foreign directors
induces a CEO to disclose more IC information. In accordance with agency theory, the
presence of foreign directors encourages CEOs to make greater ICDs, which results in
higher transparency. Moreover, our findings align with the view that a higher proportion
of foreign directors leads to higher-quality strategic decisions, lower information
asymmetry and a higher capacity to create. Furthermore, the cultural diversity findings
(β 5 0.09, p < 0.01) in Model 2 underline the role of foreign directors in supporting higher
HC. This concurs with previous research on diversity, which presumed that board
members with heterogeneous qualifications, diverse cultures and professional
competencies enlarge the knowledge pool and promote innovation (Pitcher and
Smith, 2001).
However, the estimated coefficient on gender diversity (β 5 0.11, p < 0.05) in Model 2 is
negative and significant. This suggests that female directors play an important role in
determining the extent of HC. Aligning with the impression management perspective, higher
female representation on the board induces lower HC disclosure, and thus supports higher
CEO discretion about employees’ competencies and innovative skills. In other words, owing
to their risk-averse behavior, we suggest that higher female participation on the board
supports CEOs’ conservative disclosure strategy when revealing HC information because
they fear losing their firms’ competitive advantage in fiercely competitive markets.
Meanwhile, from the resource-based view and psychological perspectives, this is partly
because of the qualities of female directors (Almor et al., 2019). In particular, women tend to
show risk-averse behavior and rigorous diligence in monitoring and risk management
JIC (Charnessa and Gneezy, 2012). Indeed, higher female participation denotes a better
understanding of the environment and a better connection with stakeholders such as
customers and employees. IC scholars believe that HC is a central resource for knowledge and
innovative capacities. This evidence contradicts the argument that higher gender diversity
increases ICDs, as higher female representation contributes to better board effectiveness,
lower IC-related information asymmetry and increased transparency (Tejedo-Romero et al.,
2017). However, the impact of gender diversity on ICDs, SC and RC is statistically negligible at
conventional levels in Models 1, 3 and 4. Finally, Model 3 shows that board size and board
meetings are likely to support higher transparency, as they disclose more SC information.
These results are consistent with those of Cerbioni and Parbonetti (2007), who found that
large boards and frequent meetings raise the effectiveness and transparency of monitoring,
which has a positive impact on ICDs.
Finally, the findings of this study also provide further insights into CC as control
variables, as Table 5 shows. For instance, the productivity results suggest a negative and
statistically significant relationship between productivity and ICDs at the 1% significance
level (Model 1). This indicates that more efficient productivity leads to lower ICDs. Similarly,
our findings suggest that firms with higher productivity tend to disclose less SC and RC
information (Models 3 and 4). This finding disproves the findings of McCracken et al. (2018),
who found a positive and significant association between SC and productivity. Moreover, we
find a positive and statistically significant effect of liquidity on SC and RC at the 5%
significance level (Models 3 and 4). Firms with higher liquidity are likely to have more
resources to invest in SC and RC. Finally, Model 1 presents the estimated coefficient on
institutional ownership (β 5 0.03, p < 0.1), showing that firms with higher institutional
ownership tend to disclose less IC information in their CEO statements. Hidalgo et al. (2011)
argued that firms with higher institutional ownership are likely to impose effective
monitoring and control mechanisms that yield lower information asymmetry. Indeed, the
opportunistic behavior of key investors in exerting a negative influence on ICD strategies
influences this (Hidalgo et al., 2011). Moreover, Models 3 and 4 confirm the persistent inverse
relationship between institutional ownership and SC/RC at the 5% significance level
(Table 5). This finding is consistent with that of Hidalgo et al. (2011), who argued that higher
institutional ownership explains the negative behavior of CEOs in disclosing less information
about SC and RC to stakeholders to the detriment of minority stockholders.
4.2.3 ICDs and FP (accounting indicators: ROE and ROA). Models 5–8 investigate the
impact of ROE, as an accounting indicator, on ICDs. Table 6 shows the results. Model 5 shows
that firms with higher ROE are likely to communicate fewer voluntary ICDs in their CEO
statements (β 5 0.02, p < 0.05), rejecting H4b. Prior studies found similar evidence in
developed countries (Williams, 2001; Melloni, 2015; Schiemann et al., 2015; Abhayawansa and
Guthrie, 2016). Williams (2001) argued that better-performing firms based on ROE are likely
to reduce ICD when their performance reaches a critical value.
Model 6 shows the negative and significant association (β 5 0.05, p < 0.1) between ROE
and HC, again rejecting H1b. This is because the CEOs of firms with higher ROE are
conscious about business challenges, resulting in disseminating specific HC information to
stakeholders (Schiemann et al., 2015). Model 7 shows no relationship between ROE and SC,
while Model 8 concludes a negative impact (β 5 0.07, p < 0.05) of ROE on RC; both findings
lead us to reject H2b and H3b, respectively. These findings, from the perspective of ROE,
suggest that CEOs may withhold key value-creating IC resources when their firms show
higher ROE profitability, representing a response to their uncertain environment to maintain
competitive advantage and prevent new competitors from entering an industry (Petty and
Guthrie, 2000). Our evidence also suggests that CEOs of firms with higher profitability are
likely to use impression management tactics to intentionally provide selected IC information
to stakeholders to achieve both personal and firm objectives (Peck and Hogue, 2018).
 Table 6 shows the results of Models 9 to 12 for ROA. Surprisingly, our findings suggest Impact of FP
that FP (ROA) has no impact on the extent of ICDs or the IC components. Thus, H1c, H2c, H3c and CG on
and H4c are rejected. Our results contradict prior studies, which argued that CEOs emphasize
ROA as an FP measure (Muttakin et al., 2015; Chiu et al., 2019). However, prior studies
ICDs in CEO
presented mixed results when using FP proxies, as discussed in Section 2.2.2. statements
In terms of the CG mechanisms, as shown in Section 4.2.2, the cultural and gender
diversity findings in Models 6 and 10 confirm the results of Models 2 and 3, which stress the
importance of the role of both female and foreign directors in determining the extent of HC. In
general, the results of Table 6 in relation to CEO attributes, board size, board meetings,
institutional ownership and productivity seem persistent and confirm the results in Table 5.

5. Conclusions
This study examines the effect of FP on ICDs by underlining the HC, SC and RC of a sample of
listed non-financial firms in France. The approach this study employs differs from that in
prior research, thus contributing to the knowledge on financial reporting in general and, more
specifically, in relation to the research gaps on ICDs. The approach of this study provides
significant insights into the literature on the IC information and knowledge components
disclosed in CEO statements, thereby offering a better understanding of CEO behavior when
communicating IC resources in the French context. Moreover, it provides empirical evidence
that FP determines the ICD level. The composition of CG mechanisms drives ICDs. For
instance, in the French context, the findings show that cultural diversity determines IC and
HC disclosure levels in CEO statements. In general, the findings highlight the importance of
understanding CEO behavior in the disclosure of IC information to stakeholders.
The presented findings allow this study to conclude that a CEO’s enthusiasm to report a
diverse narrative of the IC dimensions in the CEO statement is plausible, as it conveys his/her
intention to emphasize the firm’s distinct IC resources to a range of stakeholders. Specifically,
the breakdown of ICD components that this study adopts shows that CEO statements
underline the comparable importance of employees’ competencies and skills (HC),
organizational capital (SC) and external relationships (RC), which all help develop
customer knowledge, enhance distribution channels and restructure a firm’s value chains
in a competitive global context. From an impression management perspective, CEOs
communicate with stakeholders such as market participants to describe how their firms
create human, organizational and relational knowledge to enhance their firms’ reputation and
change stakeholders’ perception of firms’ key value drivers. Consistent with agency theory,
this study contributes to the literature by providing evidence that the ICDs in CEO statements
decrease the asymmetry in IC information. This supports higher IC transparency levels via
the ICDs in CEO statements, thereby underlining the role of CEO statements as a relevant
source of IC information for stakeholders. To the best of our knowledge, this is the first study
to emphasize CEOs’ ICD behavior from both agency and impression management theory
perspectives by relating HC, SC, RC and ICDs to firm performance and controlling for CG
mechanisms, namely, CEO characteristics (age, education and duality), gender diversity,
board independence, cultural diversity, board size and board meetings.
In addition, this study offers significant practical and theoretical implications. First, it
provides insights to managers into the FP effects on the enhancement of ICDs. Moreover, it
enhances their perceptions of the relevance and importance of ICD components and motivates
them to disclose this type of information by reducing the manipulation of ICDs through
employing fewer impression management tools and augmenting stakeholder benefits.
Second, firms with a high percentage of foreign directors can improve ICDs to protect
stakeholders’ benefits in their conflicts with managers. Specifically, our findings on cultural
diversity support that firms with a low percentage of foreign directors can increase the
JIC proportion of these directors on their boards to reduce ICDs asymmetry and reduce the
manipulation of ICDs reported to the public, which results from agency problems and
managers’ impression management skills. Third, CEOs’ characteristics (age, educational
background and duality) drive the extent of knowledge-based information addressed to
stakeholders. Fourth, the findings of this study determine the extent of the ICDs published by
SPF-120 listed firms, offering implications regarding the value added for the firm. In
particular, prior studies argued that ICDs create value added for the firm (e.g. Ahangar, 2011).
More specifically, they increase the confidence of new investors to invest in the firm
(Janosevi
c and Dzenopoljac, 2012). Moreover, stakeholders can develop perceptions of the FP
of a firm through the ICDs in the CEO statement, which enhances their decision-making.
Fifth, our study investigates an efficient market (SPF-120) of listed firms that are business
leaders, such as Airbus, Safran, Peugeot and Legrand. Such a business environment reflects
the reality of ICDs, and this enhances the generalizability of our study’s findings. Finally, our
findings are helpful to the AMF as well as standard setters (i.e. International Accounting
Standards Board) in developing rules for ICDs.
However, this study also has some limitations. For instance, the scoring method used for
ICDs may include some elements of subjectivity about the items relating to HC, SC and RC.
However, we obtain these items from prior studies, as Appendix shows, which increases the
validity of the method. Moreover, more than one researcher from this study read the CEO
statements to increase the accuracy and reliability of the scoring method and reduce any such
subjectivity. We took steps before analyzing the results and examining the findings. This
study also offers future research opportunities. For instance, future studies may examine the
level of competitive disadvantage and specific innovation tools relating to ICDs.

Notes
1. Additionally, we select audit committee characteristics (i.e. size, meetings and independence) as CG
mechanisms that determine ICDs. However, we exclude them because of constraints during the data
analysis, as they are statistically insignificant and their marginal explanatory power is negligible.
2. We hand-collect the age and education data of CEOs from their biographies published in the
registration documents of firms.
3. Tables 3 and 4 contain the VIF, Breusch–Pagan, Lagrange multiplier and Hausman test values.
4. The VIF value is a crucial test to validate the degree of multicollinearity, that is, whether the multiple
correlations among the independent variables are too high. The study concludes that the
associations among the independent variables do not reflect reality (Pallant, 2011).
5. In this study, the time effect is statistically significant, as it indicates the importance of the learning
effect (Leslie and Holloway, 2006; Sharma and Dharni, 2017).

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JIC Appendix

Items of IC Index Studies

A Human capital
1 Employee educational opportunities Guthrie and Petty (2000); Tejedo-Romero et al.
(2017)
2 Vocational qualifications Yan (2017); McCracken et al. (2018),
3 Employee engagement Melloni (2015); Tejedo-Romero et al. (2017)
4 Employee thanked Guthrie and Petty (2000); Abhayawansa et al.
(2016)
5 Employee featured Yan (2017); Melloni (2015)
6 Employee involvement in the community Yan (2017); Tejedo-Romero et al. (2017); Melloni
(2015)
7 Employee training Melloni (2015)
8 Employee career development McCracken et al. (2018); Melloni (2015)
9 Innovative skills Melloni (2015); McCracken et al. (2018)
10 Fair opportunities regardless employee gender, Guthrie and Petty (2000); Abhayawansa et al.
region, disability (2016)
11 Employee safety and health Tejedo-Romero et al. (2017)
12 Specific skills and know-how Abhayawansa et al. (2016)
13 Human competences McCracken et al. (2018); Melloni (2015)
14 Succession planning McCracken et al. (2018); Melloni (2015)
15 Expert seniority Yan (2017)
16 Senior executives’ performance Tejedo-Romero et al. (2017)
B Structural capital
17 Management philosophy Abhayawansa et al. (2016)
18 Corporate culture Goebel (2019); Abhayawansa et al. (2016)
19 Management processes Guthrie and Petty (2000); Melloni (2015)
20 Achievements Melloni (2015); Yan (2017)
21 Information systems Abhayawansa et al. (2016); Tejedo-Romero et al.
(2017)
22 Networking systems Guthrie and Petty (2000); Abhayawansa et al.
(2016)
23 Intellectual property Guthrie and Petty (2000); Melloni (2015)
24 Organizational flexibility Melloni (2015); Yan (2017)
25 Organizational learning Melloni (2015); Tejedo-Romero et al. (2017)
26 R&D Guthrie and Petty (2000); Melloni (2015)
C Relational capital
27 Brands Guthrie and Petty (2000); Melloni (2015)
28 Licensing agreements Guthrie and Petty (2000); Abhayawansa et al.
(2016)
29 Franchising agreements Guthrie and Petty (2000); Abhayawansa et al.
(2016)
30 Customers loyalty and confidence Guthrie and Petty (2000); Abhayawansa et al.
(2016)

(continued )
Items of IC Index Studies
Impact of FP
and CG on
31 Reputation of the company Melloni (2015) ICDs in CEO
32 Favorable contracts Guthrie and Petty (2000); Abhayawansa et al.
(2016) statements
33 Market share Tejedo-Romero et al. (2017)
34 Distribution channels Guthrie and Petty (2000); Abhayawansa et al.
(2016)
35 Business collaborations Melloni (2015)
36 Stakeholders’ relationships Melloni (2015) .

Corresponding author
Ghassan H. Mardini can be contacted at: ghassan.mardini@qu.edu.qa

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