Moderating role of sustainability disclosure on the relationship between intellectual capital and firm performance

Abstract

This research aimed to study: 1) the relationship between intellectual capital and firm performance and 2) the relationship between intellectual capital and firm performance moderated by sustainability disclosure. Firm performance was based on the accounting and market performance of the firm with accounting-based performance measured by return on assets (ROA), sales, and return on invested capital (ROIC) and market-based firm performance measured by Tobin's Q. The sustainability disclosure interms of environment, society, communities, and corporate governance was measured by the Global Reporting Initiative (GRI) standards. Intellectual capital was measured by value added intellectual capital (VAIC). The samples consisted of 185 firms sampled from three industries: agriculture and food, technology, and service, which were listed firms on the Stock Exchange of Thailand. The data were secondary data collected from financial statements published on firms’ annual reports (Form 56- 1), sustainability reports, and other related information published on websites. Intellectual capital was an independent variable; the moderator was sustainability disclosure, in which the period of collecting data was from 2018 to 2020. The research results showed a positive relationship between intellectual capital and accounting firm performance of the following year (year t+ 1), namely ROA and ROIC at a statistically significant level of. 05. Meanwhile, intellectual capital had no relationship with sales of the following year (year t+1). Moreover, the study also found that intellectual capital had a positive relationship with market firm performance of the following year (year t+ 1) in the same direction at a statistically significant level of. 05. This could be explained that having high level of intellectual capital would increase the value of Tobin’ s Q of the following year (year t+ 1) in which reflected that when intellectual capital affected accounting firm performance, this also affected the value of market firm performance. When examining the moderating role of sustainability disclosure, the results revealed that the disclosure of sustainability had an influence on the relationship between intellectual capital and the market firm performance measured by Tobin's Q at a statistically significant level of. 05. This implies that the relationship between intellectual capital and Tobin's Q tends to be stronger when companies disclose their sustainability practices. This disclosure includes information beyond financial reporting, which helps support investment decisions by investors considering investing in the company, leading to the increase in market returns. However, sustainability disclosure had no effect on the relationship between intellectual capital and accounting firm performance. This could be attributed to the voluntary nature of sustainability reporting during the study period in Thailand. Additionally, the relatively short duration of measuring accounting performance may not fully capture the impact of sustainability disclosure on the relationship between intellectual capital and accounting firm performance. Further analysis examining industry-specific effects revealed that the technology and service industries showed consistent results with the overall findings. On the other hand, the study did not find any significant influence moderation of sustainability disclosure in the agricultural and food industry. The lack of influence from sustainability disclosure may serve as a recommendation for companies to consider incorporating more importance in disclosing information to address the concerns of stakeholders regarding their internal business practices, particularly in relation to environmental and social issues.