Development of Intellectual Capital Reporting

2672 thanked, employees being featured and employee involvement in the community whereas the employee welfare sub-category consists of employee compensation plan, employee benefits, and employee share and option ownership plan. Lastly, the employee-related measurements sub-category comprises value-added by employees and executives, employee numbers, professional experience, eductaion levels, expert seniority, and age of employees Subbarao and Zeghal, 1997. The next section shall illustrate the research methodologies that will be carried out throughout the study. 2673

CHAPTER III: RESEARCH DESIGN AND METHODOLOGY 3.1

The purpose of the study, research questions and hypothesis The main objective of this projectresearch is to develop an IC IndexRating for Malaysian companies. Wit h the development of εalaysia into a ‗knowledge- based economy‘, companies have begun to recognise the importance of managing IC and it is appropriate to develop an IC Index for these companies. Other sub-objectives are to derive IC value using such Index and relate to performance and market value of these companies. Spesifically, the study embarks on the following objectives: 1. To identify the components and elements of IC of companies; 2. To develop a structured measurement tool for management of IC; 3. To assess the IC value of companies; 4. To relate IC value with performance, market value, etc. 5. To make recommendation based on empirical findings for external reporting of IC.

3.2 Research Hypotheses

The research aims to test the following hyphotheses: 1. The higher the value of IC, the higher the company‘s performance e.g. profitability, ROA 2. The higher the value of IC, the higher the company‘s market to book ratio MTBR or market value 3. There is a significant difference between the value of IC among different types of companies in Malaysia. Further hypothesis shall be developed later. 3.3 Research Methods The research will use a mixed method of investigation: 1. A list of IC elementscomponents will be developed from literature; 2. An empirical research via questionnaire on managers companies listed on the main board of Bursa Malaysia regarding IC elementscomponents and their measures used in practice; 3. A check list and score board will be developed and employed to measure companies‘ IC; 4. Some financial data such as MTBR, profit, etc will be obtained from DataStream. 2674 5. Content analysis of companies‘ annual reports will also be carried out to gaugeanalyse the level of IC repoting; The research will also be conducted via interviews and postal survey with the aid of questionnaires. 3.4 Sampling Procedure and Data Collection This research will use simple random sampling as the research is attempting to value IC of Malaysian public listed companies main board. Various methods of investigation such as self-administered andor postal survey and interviews will be employed. Interviews will be conducted on selected companies after preliminary survey. Other financial data such as market to book ratio MTBR, profit, etc will be obtained from DataStream. Strategic management and measurementaccounting literature both provide huge amounts of intellectual capital related information, which will be used to create an instrument IC-index for the measurement purpose. Studies among these areas and especially in the area of capital market research contain disclosure indexes, where items of intellectual capital exist. Although these indexes contain most often other elements as intellectual capital as well, they can be used to help the structural formation of the planned index. At this point of process it seems that there will be three main categories in this index – human, structural and relational capital – which all contain items of intellectual capital. A pilot study will verify that the questionnaire is properly designed and the items are understood in a proper manner. The pilot study also allows to add items of intellectual capital to the index that the respondents feel absent. Managers of financial and personnel administration should probably be stressed, when executing the survey. A 1-to-5 or 1-to-7 Disagree-Agree type scale δikert scale will be used to score firms‘ intellectual capital. 3.5 Data Analysis Besides descriptive statistics, quantitative analysis such as factor analysis and regression analysis will be conducted. Regression model for example can be used to test the importance of intellectual capital for companies‘ financial performance. Factors such as size, industry, ownership, etc can be used to split the data in more detail. Furthermore, each element of the IC Index can be tested separately to find out their importance for companies‘ financial performance. In addition, qualitative analysis will be conducted on the findings of interviews. 3.6 Potential Results of the Study First of all, this study aims to construe a deeper understanding of the role of intellectual capital in firm‘s business processes and financial performance. Some models of economics are used to describe the core functions and operational environment of firms, whereas models explaining firms‘