The Mediating Effect of Business Model on the Relationship Between Intellectual Capital Disclosure and Value of Listed Companies: Empirical Evidence from Kenya and South Africa

Abstract

Listed companies in Kenya have experienced firm value volatility over a considerable period of time. Whereas, disclosures in corporate reports have been linked to firm value, examination of non-financial information related aspects in integrated reports has not been explored fully. One of the non-financial related component contained in the <IR> framework is intellectual capital. This research investigates the relationship between intellectual capital disclosure and value of listed companies in Kenya and South Africa, and examines whether business model mediates this relationship. The study relied on Positivist research philosophy and grounded on the stakeholder theory, legitimacy theory and agency theory. The study design was both exploratory and confirmatory. Out of a population of 209 companies, the study purposefully selected a sample of 137 companies comprising 19 firms from NSE, Kenya, while, 118 companies were from JSE, South Africa, considered integrated reporting adopters for the period 2018-2020. Utilizing secondary data obtained from audited integrated reports and annual financial statements of the sampled companies, the study used descriptive statistics to summarize the data, with Pearson correlation methods applied to inspect variable associations. The hypotheses were tested using stepwise regression analysis on the basis of Baron and Kenny (1986) four step mediation process. The results reveal negative and statistically significant effect of intellectual capital disclosure on value of firms listed in NSE, while, the effect was positive and statistically significant in respect to JSE, listed companies. Furthermore, the effect of intellectual capital disclosure on business model was positive and statistically significant for both countries. Finally, the mediating effect of the business model on the relationship between intellectual capital disclosure and value of firms listed in NSE and JSE was established. However, Kenyan listed companies reported inconsistent mediation, as, South African companies data exhibited complete/full mediation. The study recommends that managers in these organisations should embrace intellectual capital and business model disclosures for the purpose of improving firm values and legitimization objectives.

Keywords: Intellectual capital disclosure, Integrated reporting, Corporate disclosures, business model, firm value, Tobin’s Q, Kenya, South Africa

DOI: 10.7176/RJFA/15-8-04

Publication date: September 30th 2024