Background
In today's knowledge-based economy, organizations increasingly invest not only in physical assets but also in intangible assets, with intellectual capital being a key driver of value (Mehralian et al., 2013) Effective management of intellectual capital is crucial due to the significant investments involved and the direct and indirect benefits it offers These benefits include the added value derived from processed knowledge, the learning processes involved in measuring intellectual capital (Roos et al., 1997), the enhancement of sustainable competitive advantages through strategic intellectual assets (Riahi-Belkaoui, 2003), and the essential determinants of organizational success (Alum & Drucker, 1986).
Since adopting an open-door policy in the 1990s, Vietnam has experienced a significant increase in economic competition, particularly with its integration into the ASEAN Economic Community (AEC) and the Trans-Pacific Partnership (TPP) Consequently, it is crucial for managers in Vietnamese enterprises to recognize the value of intangibles and intellectual capital, as these elements are essential for achieving sustainable competitive advantages in the global market This growing emphasis on intellectual capital is likely to inspire further research among scholars focused on its impact within the Vietnamese context.
The concept of intellectual capital has evolved through three distinct stages, reflecting societal concerns The first stage, beginning in the 1990s, focused on raising awareness, defining key concepts, and reviewing case studies (Mehralian et al., 2013) The second stage, which commenced in 2000, emphasized measurement, modeling, and international case studies, revealing a positive correlation between intellectual capital and corporate performance across various research methodologies (Mehralian et al., 2013) The third stage, starting in 2004, examines the managerial implications of effectively managing intellectual capital While much of the research has been conducted in developed Western nations, studies have also emerged from some Asian developing countries, including Thailand and Malaysia.
Hong Kong, this specific area of intellectual capital has been neglected in the body of Vietnamese literature
Strategic management accounting, as introduced by CIMA, focuses on information relevant to key strategic decisions and plays a potential role in managing intellectual capital, which is considered a strategic asset While existing literature primarily discusses external reporting and measurement of intellectual capital, there is limited exploration of the relationship between intellectual capital and strategic management accounting Organizations with robust intellectual capital can effectively develop strategic management accounting systems to identify, measure, and communicate value drivers Conversely, an evolved strategic management system can enhance the identification and communication of intellectual capital to support strategic objectives The challenge lies in creating a strategic management accounting system aligned with a company's unique attributes and competitive strategies, enabling precise identification and valuation of its intellectual capital components In the context of Vietnam, enterprises are gradually adopting advanced accounting techniques influenced by foreign-owned enterprises, yet medium and large businesses often lack understanding of implementing strategic management accounting Consequently, this area has garnered attention in Vietnam since the 2010s The author highlights the importance of studying the correlation between intellectual capital, strategic management accounting practices, and corporate performance within the Vietnamese business environment, emphasizing the mediating role of strategic management accounting practices in this relationship.
Research questions and research objectives
The research gaps identified highlight the necessity to explore the impact of intellectual capital and strategic management accounting practices on corporate performance in transitional economies like Vietnam, where these topics remain underexplored This raises critical questions about the development of a strategic management accounting system that effectively supports intellectual capital to enhance financial performance Furthermore, it prompts an investigation into how strategic management accounting can manage intellectual capital to improve an organization's financial outcomes Consequently, three key research questions have been formulated.
Research question 1: What is the direct effect of intellectual capital components on corporate performance in Vietnamese enterprises?
Research question 2: What is the effect of intellectual capital components on corporate performance in the presence of strategic management accounting practices?
Research question 3: How do strategic management accounting practices handle each component of intellectual capital to improve corporate performance?
This dissertation aims to empirically examine the relationship between intellectual capital, strategic management accounting practices, and corporate performance It specifically investigates how strategic management accounting practices mediate the relationship among the components of intellectual capital and three financial dimensions of corporate performance Additionally, the study analyzes the role of strategic management accounting practices in managing intellectual capital components.
- RO1: Testing the direct impact of each of intellectual capital components on corporate performance
- RO2: Examining the direct influence of strategic management accounting practices over corporate performance
- RO3: Investigating an indirect path between intellectual capital components and corporate performance through the mediating role of strategic management accounting practices
- RO4: i Empirically i analysing i which i group i of i strategic i management i accounting ipractices i (i.e i strategic i cost i management, i competitor i accounting, i strategic iaccounting i and i customer i accounting) i are i related i to i manage i which i components iof i intellectual i capital
- RO5: Providing additional evidence on the interconnection of intellectual capital components.
Research object and research scope
This dissertation explores the relationship between intellectual capital, strategic management accounting practices, and corporate performance, focusing on business organizations as the unit of analysis To examine the application of strategic management accounting (SMA) practices, data is gathered through a questionnaire survey directed at SMA practitioners The informants, consisting of managers or top management members with a minimum of two years of experience in accounting, planning, or finance, serve as the unit of observation Additionally, financial information from annual reports and financial statements is analyzed to assess the impact of intellectual capital on corporate performance.
This study focuses on three key aspects Firstly, it examines Vietnam, a developing Asian country with a transitional economy and a collectivist culture, as the primary research site for observation and empirical testing Secondly, the study targets business organizations listed on the Hochiminh Stock Exchange (HoSE) and the Hanoi Stock Exchange (HNX) to facilitate convenient financial data collection Lastly, the survey regarding Strategic Management Accounting (SMA) practices is conducted within the specified year.
In this study, we focus exclusively on the 2016 financial data related to intellectual capital and the financial performance of public companies where the respondents are employed, rather than utilizing panel data spanning multiple years as seen in previous research on intellectual capital.
However, to calculate some variables such as organizational capital, innovation capital, investment efficiency, the author has to collect financial data in the period of 7 years (from
Methodology
This study reviews the literature on intellectual capital, strategic management accounting practices, and corporate performance, ultimately proposing two research models with six hypotheses It primarily employs a quantitative research method, utilizing empirical survey data and financial information from a sample of at least 127 public enterprises in Vietnam for the year 2016 Given the complexity of the research models, which include mediators, and the relatively small sample size, data analysis is conducted using partial least squares structural equation modeling (PLS-SEM), supported by SPSS 24.0 and SmartPLS 3.1 software packages.
Outline of the dissertation
Besides the parts of introduction and conclusion, this dissertation is organized with 7 chapters, as follows:
Introduction part This i part i states i the i background i well i as i the i research i questions i and iobjectives i Then i it i briefly i describes i the i research i methodology i and i provides i the i research iscope
Chapter 1: Literature Review This section examines existing literature on intellectual capital and strategic management accounting across various countries, including Vietnam It aims to identify research gaps that highlight potential areas for further investigation, ultimately guiding the development of the research objectives for this dissertation.
Chapter 2 explores the definitions of intellectual capital and its components while examining the interplay between corporate performance and strategic management accounting practices It introduces existing theories that underpin the measurement of intellectual capital, providing a clear understanding of the variables involved for discussion in subsequent chapters.
Chapter 3 delves into the theoretical framework that underpins the development of testable hypotheses for two research models, aimed at addressing specific research questions and bridging identified gaps in the literature This chapter articulates the rationale behind the formulation of six testable hypotheses.
Chapter 4: Research Methodology outlines the development of the research methodology in detail It explains how the constructs in the theoretical model are operationalized and measured Additionally, this chapter discusses the unit of analysis, the informants involved, and the sample size utilized in the study.
Chapter 5 focuses on the assessment of sample characteristics and measurement scales It begins by outlining the data collection process necessary for developing variables related to Strategic Management Accounting (SMA) practices, followed by a pilot test to evaluate the indicators of these practices The chapter then details the refinement of measurement scales based on data gathered from Vietnamese public enterprises Lastly, it presents descriptive statistics of the research data and assesses the collinearity issues within the inner structural models.
Chapter 6 focuses on data analysis and discussion, detailing the evaluation of theoretical models and presenting empirical results related to the hypotheses established in Chapter 3 The analysis includes outcomes from direct and mediated path regressions conducted using SmartPLS 3.1, organized sequentially from the first to the sixth hypothesis, followed by the results of control variables Each significant finding is not only described but also contextualized within a managerial framework, providing a comprehensive understanding of the data.
Chapter 7: Implications for managing intellectual capital by strategic management accounting practices The managerial implications of this study are outlined in this chapter
This article introduces a three-stage value creation process derived from the testing of six hypotheses It also offers recommendations for leaders, policymakers, and the academic community on effectively managing intellectual capital.
Particularly, the last section suggests the orientations how to manage intellectual capital following each group of strategic management accounting techniques
In conclusion, this section summarizes the main findings of the study, highlighting both theoretical and managerial contributions It also addresses the research limitations and offers suggestions for future research directions.
LITERATURE REVIEW
Review of international studies of intellectual capital
Transitioning from an industrial-based economy to a knowledge-based economy requires a shift in how a firm's value is assessed, moving beyond mere financial results to include the value of activities that foster knowledge resources (Stewart & Ruckdeschel, 1998) This approach enhances the understanding of how employees, stakeholders, and various activities contribute to value creation, presenting the challenge of identifying, measuring, and reporting on intellectual capital (Dumay, Guthrie, & Ricceri, 2012) The rise of intellectual capital as a topic in the mid-1990s has led to a diverse body of literature across multiple research disciplines Over time, intellectual capital has gained recognition, leading to the establishment of specialized journals such as the Journal of Intellectual Capital and the International Journal of Learning and Intellectual Capital, alongside significant contributions in prominent business and management journals, including the Accounting, Auditing & Accountability Journal and the European Accounting Review, which are particularly influential in the field of intellectual capital measurement and management.
1.1.1 Stages in developing intellectual capital as a research field
Understanding the historical perspective of intellectual capital (IC) is crucial for recognizing its significance in today's business landscape Petty and Guthrie (2000) identified two stages in IC research: the first stage aimed at raising awareness of IC's potential to create sustainable competitive advantages, while also establishing guidelines for measurement and reporting Early research, primarily conducted before the mid-1990s, laid the groundwork for a commonly accepted terminology around IC The second stage focused on organizational-level evidence, exploring how IC contributes to value creation This research led to the identification of three main components of IC and defined its accounting discipline as involving management, measurement, and accountability According to Dumay et al (2012), a third stage of IC research is emerging, critically examining IC's practical applications and managerial implications This stage emphasizes a bottom-up approach, considering the broader value of IC beyond monetary terms, including its importance to customers and stakeholders (Dumay & Garanina, 2013).
Despite looking at three developing stages of IC, Guthrie (2001) provides a timeline of major IC research milestones, as summarized in Table 1.1
Table 1.1 Milestones of significant contributions to the identifications, measurement and reporting of intellectual capital
General i notion i of i intangible i value i (often i generically i labelled i“goodwill”)
The i “information i age” i takes i hold i and i the i gap i between i book i value i and imarket i value i widens i noticeably i for i many i companies
Early i attempts i by i practitioner i consultants i to i construct i statements/ iaccounts i that i measure i intellectual i capital i (Sveiby, i 1989)
▪ Initiatives i to i systematically i measure i and i report i on i company istocks i of i intellectual i capital i to i external i parties i (e.g i The i Swedish iCoalition i of i Service i Industries i (SCSI) i (1995)) i
▪ Kaplan i and i Norton i (1992) i introduce i the i concept i of i a i Balanced iScorecard i The i Scorecard i evolved i around i the i premise i that i “what iyou i measure i is i what i you i get”
Nonaka and Takeuchi's influential work, "The Knowledge-Creating Company" (1995), emphasizes the importance of knowledge in organizations While the book primarily focuses on knowledge, it also draws a fine distinction between knowledge and Intellectual Capital, making it relevant for those specifically interested in Intellectual Capital.
In 1994, Skandia introduced a supplement to its annual report that emphasized an evaluation of the company's Intellectual Capital Titled "Visualizing Intellectual Capital," this initiative garnered significant interest from other companies looking to emulate Skandia's innovative approach (Edvinsson & Sullivan, 1996).
The pioneers of the Intellectual Capital movement, including Kaplan and Norton (1996), Edvinsson and Sullivan (1996), and Sveiby (1997), have published bestselling books on the subject Notably, Edvinsson and Malone focus extensively on the processes involved in measuring intellectual capital and the methodologies behind it.
▪ Intellectual i Capital i becomes i a i popular i topic i with i researchers i and iacademic i conferences, i working i papers, i and i other i publications ifind i an i audience
▪ An i increasing i number i of i large i scale i projects i (e.g i the iMERITUM i project; i Danish; i Stockholm) i commence i which i aim, iin i part, i to i introduce i some i academic i rigour i into i research i on iIntellectual i Capital
▪ In i 1999, i the i OECD i convenes i an i international i symposium i in iAmsterdam i on i intellectual i capital i (Organization i for i Economic iCo-operation i and i Development i (OECD), i 2000)
Since the 2000s, IC research has been progressively shared with the broader accounting research community Generalist accounting journals and conferences have facilitated the acceptance of IC accounting papers through special editions (Dumay et al., 2012).
▪ There i is i an i increasing i trend i on i knowledge i management i research ibesides i intellectual i capital i research i (Dumay i et i al., i 2012) i
Source: Summarized by the author on the sources of Guthrie (2001) and Dumay et al (2012)
1.1.2 Research trends on intellectual capital in the accounting discipline
Intellectual capital is a crucial knowledge resource that requires effective management and can be analyzed from both microeconomic and macroeconomic perspectives It is examined through four key lenses: economic, strategic, managerial, and accounting (Alcaniz et al., 2011) From an economic standpoint, countries rich in intellectual capital, such as those with advanced technology and a well-educated workforce, experience greater wealth (Stewart & Ruckdeschel, 1998) Strategically, a company's success increasingly relies on its intangible assets rather than tangible ones, highlighting the importance of accumulating intellectual capital, which is influenced by the reciprocal relationship between resources and strategy (Brooking).
From a managerial perspective, an organization’s resources are formed by the combination of various types of capital, including physical, financial, and intellectual capital It is essential to identify and manage these resources effectively, as they are fundamental to the organization’s overall value.
However, i this i study i concentrates i on i numerous i insights i on i the i issues i involved i in iaccounting i for i intellectual i capital In the accounting discipline, as showed in Dumay et al
A 2012 study analyzed 423 journal articles on intellectual capital from 2000 to 2009, revealing that the primary focus of research in this area is on management accounting and external reporting However, there has been limited publication addressing topics such as accountability, governance, and auditing.
Table 1.2 Topics of intellectual capital research in the accounting discipline
Table 1.2 presents the focus of research trends on intellectual capital in the accounting discipline, as follows:
Intellectual capital (IC) disclosure can be voluntary and non-quantitative, benefiting both firms and investors when linked to firm performance While extensive research has been conducted on IC disclosure practices in developed countries, there is significantly less available for emerging economies (Wagiciengo & Belal, 2012) Most studies from emerging markets focus primarily on Asian countries, providing empirical insights into IC disclosure through various media, including annual reports and corporate social responsibility reports Findings indicate variations in IC disclosure based on company size and industry sectors, with European disclosures showing 49% on relational capital, 30% on structural capital, and 21% on human capital (Bozzolan, O'Regan, & Ricceri, 2006) A review of the literature reveals that many studies utilized single-year data through content analysis, with only a few employing longitudinal data Notable longitudinal studies by researchers like Bozzolan, Favotto, and Ricceri (2003) and Bharathi Kamath (2008) have offered a more in-depth examination of IC disclosure practices.
Research by Keenan and Aggestam (2001) and J Li, Pike, and Haniffa (2008) explores the impact of corporate governance factors on intellectual capital disclosure, utilizing various disclosure measures These studies propose that there are significant relationships between intellectual capital disclosure in annual reports and elements such as board structure, role duality, ownership concentration, audit committee size, and the frequency of audit committee meetings, while controlling for factors like listing age, firm size, and profitability.
Management control is a prominent area of research, as illustrated by the 160 articles listed in Table 1.2, which cover various management-related topics Notable studies include the application of Balanced Scorecards for managing intellectual capital (IC) across different sectors, including service organizations, banking, and the non-profit sector Research by Tayles et al (2002, 2007) advocates for utilizing management accounting approaches to enhance IC control, emphasizing the effectiveness of modern techniques over traditional budgeting methods Specifically, the "beyond budgeting" concept is favored for IC control, while real options valuation is recommended for assessing strategic IC investment opportunities, highlighting the evolving nature of management practices in this field.
In the early 1990s, several performance measurement frameworks emerged to address the limitations of financial-only metrics, emphasizing the importance of intangible resources such as key customers, internal processes, and learning (Tayles et al., 2007; Amir & Lev, 1996) Notable models include the Intangible Assets Monitor (Roos et al., 1997), Skandia Navigator (Sveiby, 1997), and the Balanced Scorecard (Kaplan & Norton, 1996), each focusing on different aspects of intellectual capital The Balanced Scorecard, for instance, evaluates relational, structural, and human capital while assessing their influence on shareholder goals Lev (2001) introduced the Value Chain Scoreboard, aimed at providing management and investors with structured insights into the impact of intellectual capital on corporate performance and valuation The literature indicates that firms with significant intellectual capital are more inclined to adopt performance measurement frameworks that align with shareholder value.
During the early 2000s, a significant number of articles lacked empirical research, primarily consisting of commentaries or policy statements, as highlighted by Petty and Guthrie (2000), Brennan and Connell (2000), Roslender and Fincham (2001), and García-Meca (2005) This trend was more pronounced at the beginning of the decade, with a noticeable decline in such articles by its end The initial focus was on understanding and explaining the various facets of the intellectual capital (IC) phenomenon, with little emphasis on hypothesis testing These studies contributed to the accounting literature by providing theoretical insights on incorporating IC components into practice.
1.1.3 Research methods used to study intellectual capital
As at journal paper of Dumay et al (2012) paper, the authors reviewed 423 journal papers in terms of IC to conclude that there are five groups of research methods found
Table 1.3 reveals that commentary, normative, and policy research are the most commonly utilized methods, followed by surveys, questionnaires, and case studies or interviews Dumay et al (2012) note a significant trend over the past decade, showing a steady increase in empirical research, while normative studies have declined They express concern about the potential over-reliance on empirical studies lacking theoretical support Furthermore, Dumay et al (2012) emphasize that the failure to translate intellectual capital (IC) theory into practice is due to a predominance of top-down research approaches rather than bottom-up performative research.
Table 1.3 Methods used in intellectual capital accounting research
Review of international studies of strategic management accounting
In 1981, Simmonds made a compelling argument for the adoption of strategic management accounting (SMA) in his paper published in the UK professional magazine, Management Accounting This topic has since been explored in numerous professional and academic papers, focusing on four main themes: defining SMA, identifying the techniques applied across various industries and countries, analyzing the impact of strategic options on SMA changes, and understanding the SMA process Over the past 30 years, most empirical research has relied on questionnaire surveys to assess the adoption of specific SMA techniques However, the limitations of surveys and the scarcity of case studies have resulted in a significant knowledge gap regarding the actual usage of SMA techniques, including who employs them and for whom they are intended.
1.2.1 Research on conceptualizing strategic management accounting
There is no universally agreed definition of Strategic Management Accounting (SMA) in the literature At its core, SMA is viewed as an approach that bridges strategic management and accounting (Roslender & Hart, 2003) Simmonds (1981) defines SMA as a framework that links management accounting, strategy, and a company's strategic positioning, while Bromwich (1990) narrows the definition to focus on financial information and performance relative to competitors Conversely, some authors argue that marketing serves as a more pertinent orientation for SMA (Foster & Gupta, 1994; Roslender, 1995; Wilson, 1995) From the literature, three primary approaches to conceptualizing SMA can be identified.
Simmonds (1981) approaches Strategic Management Accounting (SMA) by emphasizing Porter's framework, which has inspired extensive research focused on cost management essential for implementing a low-price competitive strategy This approach prioritizes financial information about competitors to effectively respond to their actions, rather than concentrating on design and innovation to achieve price premiums through product differentiation.
Bromwich's (1990) SMA approach utilizes attribute costing techniques to focus on the benefits a product provides to customers, rather than solely analyzing the cost drivers This perspective emphasizes the importance of understanding the benefits offered to customers and their role in establishing a sustainable competitive advantage.
Roslender and Hart (2003) argue that strategic management accounting (SMA) should integrate marketing issues, theories, and concepts, highlighting the need for "brand management accounting" that incorporates performance measures like market share, growth, and brand strength, focusing on sub-brands and specific market offerings The terminology of SMA has various interpretations influenced by researchers' backgrounds and assumptions, and since Simmonds’ initial definition over 30 years ago, consensus on its meaning remains elusive The 1990s, referred to as "the glory decade," saw significant contributions from academics, consultants, and practitioners in popularizing SMA (Langfield-Smith, 2008) Shank and Govindarajan (1993) note that many SMA techniques have been piloted in U.S companies and documented as case studies or book chapters Professional journals published articles on SMA themes, while accounting bodies emphasized SCM tools and techniques (Langfield-Smith, 2008) Due to the lack of a universal conceptual framework, the definitions of SMA vary widely, ranging from narrow interpretations focused on competitor analysis and performance measurement to broader perspectives emphasizing external orientation.
1.2.2 Research on strategic management accounting techniques
SMA practices lack a universally accepted conceptual framework, leading to a variety of listings and propositions regarding different accounting techniques with a strategic focus As illustrated in Appendix 2, there are notable overlaps in the classifications of SMA techniques, while distinctions are evident in customer accounting and strategic accounting Despite differing research perspectives, techniques such as strategic cost accounting, competitor accounting, and strategic accounting are widely recognized as essential components of SMA practices Research by Guilding and McManus (2002) introduced three customer-focused techniques, identifying customer accounting as a potential fourth dimension However, the literature often overlooks customer accounting, likely due to its relatively recent emergence and challenges in observation.
Table 1.4 Literature review of essential techniques in strategic management accounting toolbox
The valuation of customer group ✓ ✓
Source: The author’s literature review
This study enhances the existing literature on Strategic Management Accounting (SMA) by identifying key SMA techniques relevant to corporate settings and analyzing their dissemination based on structural characteristics Through cluster analysis, it investigates performance differences among various corporate groups, revealing that the usage of SMA techniques varies significantly depending on the type of firms studied For instance, Lachmann, Knauer, and Trapp (2013) note that many SMA techniques initially designed for the non-hospital sector are now being utilized in hospitals; however, certain widely-applied techniques, such as the balanced scorecard and activity-based costing, are only moderately adopted in that context Additionally, Cadez (2006) identifies that capital budgeting and competitor-focused techniques are the most commonly used, whereas customer-focused techniques rank as the least utilized.
1.2.3 Research on the relationship between environment, strategy choice and strategic management accounting practices
This theme explores strategic management accounting within organizational contexts, grounded in contingency theory The studies aim to demonstrate that performance results from an optimal alignment between management accounting systems and contingent factors, as highlighted by Cadez (2007) Research findings from Gerdin (2005) and Seaman and Williams (2011) further indicate that Strategic Management Accounting (SMA) serves as a crucial medium for performance measurement, emphasizing strategic indicators over tactical ones, thereby reinforcing the organization’s strategic objectives.
Research has investigated the impact of competitive strategies and strategic management accounting (SMA) techniques on the perceived performance of medium and large businesses Cinquini and Tenucci (2010) studied 328 Italian manufacturing firms with sales exceeding $25 million, finding that defender and cost leader strategies are more inclined to utilize SMA techniques focused on cost information Fowzia (2011) highlighted differences in the application of various SMA techniques among businesses employing cost leadership and differentiation strategies Aykan and Aksoylu (2013) examined the significant effects of competitive strategies—cost leadership, differentiation, and focusing—on both qualitative and quantitative performance perceptions Their findings indicate that differentiation strategies, along with competitor-oriented and customer-oriented SMA techniques, positively influence the perceived qualitative performance of businesses.
1.2.4 Research on strategic management accounting process
Surprisingly, there is significantly less attention in literature on the process of Strategic Market Analysis (SMA) compared to other research aspects that have been extensively discussed in articles and conference papers Some researchers view SMA as a process and argue that its techniques can be framed into distinct stages (Langfield-Smith, 2008) Additionally, the variety of SMA definitions leads to variations in perceptions of the SMA process For instance, Dixon and Smith (1993) identify four stages: strategic business unit identification, strategic cost analysis, strategic market analysis, and strategy evaluation In contrast, Brouthers and Roozen (1999) propose three stages: monitoring, decision-making and planning, and controlling Furthermore, Lord (1996) presents SMA as a six-stage process, highlighting the complexity and diversity within the SMA framework.
(2) Exploitation of cost reduction opportunities
(3) Matching of accounting emphasis with strategic position
(5) Exploitation of cost reduction opportunities
(6) Matching of accounting emphasis with strategic position.” (Lord, 1996, p 352)
Shah et al (2011) summarize the strategic management accounting (SMA) process into four key stages: (1) gathering competitor-related information, (2) utilizing accounting for strategic decision-making, (3) reducing costs based on strategic choices, and (4) achieving competitive advantage by identifying opportunities and making strategic selections While the application of SMA can differ among researchers, it is primarily influenced by their understanding of the strategic management process.
Strategic management accounting (SMA) has been a significant area of study for over 25 years, influencing practice, academia, and the accounting field Despite the growing interest in how SMA relates to the management of intellectual capital and intangibles, empirical research exploring this connection remains limited Recent studies have increasingly focused on the management and reporting of intellectual capital, emphasizing the importance of applying strategic management accounting practices to effectively manage these intangible assets.
1.2.5 Review of studies investigating the relationship between strategic management accounting practices and corporate performance
Research indicates that aligning an organization’s strategic management accounting (SMA) control system with its strategy can enhance performance Contingency theory suggests that there is an optimal structural design that aligns with a given strategy, resulting in superior performance (Cadez & Guilding, 2012) Numerous studies have explored the relationship between strategy, SMA practices, and corporate performance, starting with the work of Chenhall and Langfield-Smith (1998), which found positive associations between performance and various SMA practices across different strategic orientations Subsequent research, such as that by Aykan and Aksoylu (2013), identified the impact of competitive strategies on the performance of medium and large businesses in Turkey Similarly, Al-Mawali and Al-Shammari (2013) found that the level of SMA usage positively affects organizational performance, with perceived environmental uncertainty moderating this relationship Additionally, Ramljak and Rogošić (2012) demonstrated that the synergistic implementation of different SMA techniques positively impacts cost control Cadez and Guilding (2012) employed a holistic configurational approach to examine the relationship between strategy, SMA, and performance, suggesting that high SMA usage and greater accountant involvement in strategy processes align well with a dynamic prospector strategy, leading to improved performance.
In generally, the correlation between SMA practices and corporate performance has been conducted in a range of countries such as Australian (Chenhall & Langfield-Smith,
Numerous studies across various countries, including the UK, Malaysia, Croatia, Slovenia, and Jordan, consistently demonstrate a positive correlation in their findings (Ma & Tayles, 2009; Hassan, Muhammad, & Ismail, 2011; Ramljak & Rogošić, 2012; Cadez & Guilding, 2012; Al-Mawali & Al-Shammari, 2013) For a detailed overview, refer to Appendix 3.
Despite numerous studies across various countries examining the relationship between Strategic Management Accounting (SMA) practices and performance, the research methodologies have remained largely consistent Most studies employ the question, "To what extent does your organization use the following techniques?" accompanied by a list of SMA techniques and a Likert-type scale from "1" (not at all) to "7" (to a great extent).
Review of studies of intellectual capital and strategic management accounting in
Vietnam is a developing country with a significant population, which has undergone major economic reforms since 1986, allowing individual entrepreneurs to engage in light industry and reducing state control These reforms have led to remarkable economic growth, with an average GDP growth rate of 6.45 percent from 2000 to 2017, peaking at 8.48 percent in late 2007 and dipping to 3.12 percent in early 2009 Despite a smooth transition to a market economy and a strong entrepreneurial spirit, challenges such as inadequate physical infrastructure, limited technology and marketing skills, and a lack of clarity in international business practices remain To address these issues, Vietnam must enhance the quality of education to improve the skills of its workforce and focus on strengthening intellectual property protection as part of its structural capital development.
Statistics from the Government Office of Industrial Property indicate that only around 25,000 products and services have been registered in Vietnam, with minimal registration of industrial and mechanical designs (Nga & Thomas, 2005) For Vietnamese businesses to enhance their role in the international market, they must acquire knowledge in international banking, shipping, insurance, and marketing strategies to foster relational capital (Dana, 1994) The success of Vietnam's economy hinges on a blend of national structural capital, human capital, and international relations, coupled with an openness to innovative policies and leadership following economic reforms, alongside a resilient culture that embraces learning and adaptation Therefore, it is crucial to prioritize the development of intellectual capital in Vietnam, urging both the government and businesses to focus on this as a key driver for the future of the country and its enterprises.
The emergence of a private sector, the development of securities markets, and participation in international trading have positioned Vietnam as one of the world's fastest-growing economies Public enterprises play a crucial role in the Vietnamese economy, with the market capitalization of listed companies accounting for 26.8% of the country's GDP in 2015 Vietnam's deeper integration into the global economy, particularly through initiatives like the Trans-Pacific Partnership (TPP) and the ASEAN Economic Community (AEC), has intensified competition for listed enterprises The influx of foreign companies has positively impacted Vietnam by bringing in knowledge, skills, and infrastructure, thereby fostering innovation and development across various industries Despite numerous changes in Vietnamese organizations, including listed companies, there has been a lack of measurement or valuation of their intellectual capital—encompassing human, structural, and relational capital—generated in response to competitive pressures.
1.3.2 Research on intellectual capital in Vietnam
Most of the world’s intellectual capital research is sourced out of Western countries
Empirical studies on intellectual capital have been carried out across various countries, including North America (Bontis, 1998; Riahi-Belkaoui, 2003), Germany (Bollen et al., 2005), South Africa (Firer & Mitchell-Williams, 2003), Australia (Dumay, 2009), Bangladesh (T Hussain, Chakraborty, & Rahman, 2010), and China (J Chen).
Research on intellectual capital (IC) in sustaining the rapid growth of emerging Asian economies has been limited, despite significant economic advancements in countries like Malaysia, Taiwan, Singapore, and Thailand Notably, Vietnam has not yet received adequate attention regarding intellectual capital research, highlighting a gap in understanding its role in economic development.
In the 2010s and beyond, international interdisciplinary accounting research conferences have provided valuable opportunities for researchers to share their work and receive feedback However, while some sessions focus on intellectual capital (IC), most papers presented at conferences in Vietnam are authored by overseas researchers and lack a focus on the Vietnamese context A search of academic databases reveals only one significant paper by Nga and Thomas (2005) that addresses the structural and perceptual aspects of IC in Vietnam, discussing its role at various levels of the economy and offering suggestions for policymakers This commentary paper does not utilize empirical research, highlighting a gap in the literature As Vietnamese firms develop their IC, there is a clear need for more research in this area While Western studies have provided extensive insights into IC measurement and management, the applicability of these practices to Vietnam's emerging economy remains uncertain, indicating that international recommendations may not directly translate to the local context.
Therefore, research is needed to determine Vietnamese managers understanding and perception of intellectual capital
1.3.3 Research on strategic management accounting in Vietnam
Vietnam's economic transformation has significantly propelled the growth of its economy and businesses As the country integrates into the global market, Vietnamese enterprises are increasingly adopting advanced accounting techniques that align with market mechanisms Despite the global origins of management accounting, Vietnam has witnessed notable development stages in this field over the past decade, particularly since its formal recognition in the Accounting Law of 2003 and Circular 53/2006/TT-BTC.
Since the early 1990s, the Vietnamese management accounting system has been the focus of extensive research, exploring a variety of distinct themes as outlined in Table 1.5.
Table 1.5 Research trends on management accounting in Vietnam
1990s ▪ The directions are related how to build the contents and organization approaches of management accounting system in Vietnamese enterprises (Duoc, 1997)
▪ The author came up with organization solutions of management accounting nested within financial accounting (Dung, 1998)
▪ The directions are how to build reports system of management accounting in Vietnamese enterprises (Quang, 1999)
In the 2000s, management accounting has been extensively researched within specific industries, including manufacturing (Le, 2002), mining (Hoi, 2007), construction state-owned enterprises (Giang, 2002), the transportation sector (Dinh, 2003), and the pharmaceutical industry (Thuy, 2007).
2010s ▪ Management accounting has been studied in association with the other research fields such as management of environmental issues (Thien, 2010), sustainable development reporting (Thien & Hung,
2016), corporate social responsibilities (Long, 2015), management control system (Tran, 2010), strategic decision making in market orientation and competition (Nguyen & Doan, 2016)
▪ Strategic management accounting is directed how to implement in Vietnamese enterprises (Que & Thien, 2014)
▪ The factors have facilitated the use of strategic management accounting in Vietnam – a transitional economy (Anh, 2010)
▪ The authors have focused on only one of strategic management accounting techniques (i.e Strategic cost management (Hoa,
2014), Time-driven ABC (Thien, 2014), Lean accounting (Hoa,
2015), Balanced scorecard (Van, 2015)) to analyse the conditions resulting in the successful implementation
Source: The author’s literature review
Vietnam's economic, political, and social landscape significantly differs from that of Western and other Asian countries Since adopting an open-door policy, competition has intensified for Vietnamese enterprises, leading to the establishment of numerous private, joint venture, and wholly foreign-owned businesses over the past two decades This influx of foreign organizations has introduced valuable strategic management accounting knowledge to local practitioners and scholars Despite the growing interest in strategic management accounting since the 2010s, systematic documentation and analysis of its application in Vietnamese enterprises remain scarce Research indicates that small and medium enterprises primarily utilize traditional management accounting, while medium-to-large enterprises are more inclined to implement strategic management accounting for informed decision-making However, there is a lack of empirical studies examining the impact of strategic management accounting practices on the performance of Vietnamese enterprises, a topic that has been widely explored in other countries.
Research gaps
This study highlights three significant research gaps: the absence of investigations into the performance implications of intellectual capital in relation to the mediating effects of strategic management accounting practices, a lack of empirical research examining the relationship between intellectual capital and various strategic management accounting practices, and a dearth of empirical studies focused on intellectual capital and strategic management accounting practices within the context of Vietnam.
1.4.1 Lack of studies concerning performance implication of intellectual capital in association with the mediating role of SMA practices
Historically, empirical studies in intellectual capital (IC) accounting research have primarily focused on the direct relationship between IC components and corporate performance, with limited exploration of their indirect effects According to Ittner and Larcker (1998), effective management must identify, measure, and communicate the value drivers, such as intellectual capital, to enhance information systems, performance, and resource allocation for investors This implies that organizations with robust intellectual capital should cultivate management accounting aligned with strategic objectives However, Tayles et al (2007) note a gap in research regarding how firms with high levels of intellectual capital have adapted their strategic management accounting practices to address IC-related challenges, which may ultimately improve corporate performance While many models suggest an indirect relationship between strategy and performance mediated by management practices, few studies have thoroughly examined the role of these practices in strengthening the link between resources and performance.
Despite extensive research on the direct relationship between intellectual capital (IC) and corporate performance, there is limited understanding of how IC impacts performance through the mediating role of strategic management accounting (SMA) practices Alcaniz et al (2011) highlight that existing literature often repeats similar findings, indicating a need for more comprehensive studies This calls for systematic investigations into both the direct and indirect effects of IC on corporate performance, specifically examining the role of SMA practices within organizations.
1.4.2 Lack of empirical research concerning the relationship between intellectual capital and each group of SMA practices
A literature review on intellectual capital (IC) highlights the need for professional accountants to adopt a strategic management accounting approach to better manage an organization's most valuable assets As noted by Roslender and Fincham (2001), there is ambiguity regarding the role of management accounting in IC management, particularly in high IC companies The lack of empirical studies on how management accounting practices evolve as organizations adapt their strategies to reflect value drivers like intellectual capital indicates a significant gap Addressing how strategic management accounting interacts with intellectual capital is essential for enhancing organizational effectiveness.
1.4.3 Lack of Vietnamese empirical studies on intellectual capital and SMA practices
Research on intellectual capital and strategic management accounting (SMA) practices has predominantly taken place in developed Western nations and some Asian countries like China and Malaysia, with limited focus on developing Asian economies such as Vietnam The cultural, economic, and political differences in Vietnam may significantly impact the development of intellectual capital and the implementation of SMA Notably, Vietnam's collectivist culture contrasts with the individualism prevalent in the West, prompting an inquiry into whether this cultural distinction influences SMA practices in Vietnam Despite numerous international studies highlighting the advantages of SMA, there is a notable lack of empirical research examining the relationship between SMA practices and corporate performance specifically within the Vietnamese context.
A study examining the effects of Strategic Management Accounting (SMA) practices on the performance of Vietnamese enterprises can enhance our understanding of the applicability and benefits of SMA in transitional economies, compared to its established advantages in Western contexts.
While much of the existing research has examined the value relevance and market valuation of intellectual capital in various countries, the performance of intellectual capital in Vietnam remains significantly under-explored This gap is largely attributed to two main challenges: Vietnamese enterprises often fail to provide comprehensive accounts of their intangible investments, with many expenditures being expensed rather than capitalized, and there is a lack of awareness among Vietnamese managers regarding the critical value of intellectual capital in their operations Consequently, this limited understanding has hindered research on the performance implications of intellectual capital in Vietnam Addressing this issue could enhance the literature on intellectual capital and strategic management accounting within the context of Vietnam's transitional economy.
Chapter 1 reviews the international studies and Vietnamese studies in terms of intellectual capital, strategic management accounting, corporate performances and their mutual relationships to identify research gaps for this research
While empirical studies primarily examine the direct link between intellectual capital components and corporate performance, there is limited research exploring the indirect relationship facilitated by strategic management accounting practices Additionally, the academic literature lacks clarity on the role of strategic management accounting in relation to intellectual capital.
Intangible assets, or intellectual capital (IC), play a crucial role in maintaining the competitive advantages of economies and firms, including Vietnam Despite the emergence of IC research in the 1980s, studies in Vietnam remain limited, highlighting a significant gap in understanding this concept within the local context Therefore, there is a pressing need for a comprehensive study examining the relationship between IC, strategic management accounting (SMA) practices, and corporate performance in Vietnam This research aims to enrich the Vietnamese literature and enhance theoretical frameworks surrounding IC management through SMA practices.
The upcoming chapter will define intellectual capital (IC) and its components while exploring corporate performance and strategic management accounting (SMA) practices It will also present existing theories that support the measurement of IC, laying the groundwork for developing IC variables in Chapter 3.
THE CONCEPTS AND INTELLECTUAL CAPITAL
Definition of intellectual capital
The global economy is transitioning from an industrial model reliant on tangible assets to a knowledge-based economy focused on intangible resources such as human capital, technology, core competencies, and innovations (Dumay, 2009) Companies like Microsoft, Amazon, and Google exemplify this shift Over the past few decades, the increasing market value of firms compared to their book value highlights the growing importance of intangible assets, suggesting that current financial accounting practices inadequately represent a company's true economic value According to Stewart and Ruckdeschel (1998), conventional accounting fails to measure the worth of intangible assets embedded in an organization's operations, despite market recognition of their value They argue that the disparity between market value and book value reflects the concept of "intellectual capital," which is the source of value creation Consequently, the topic of intellectual capital has gained prominence since the mid-1990s, with ongoing discussions aimed at defining and understanding its various interpretations in the literature.
Before discussing the definitions and elements of intellectual capital, it is essential to differentiate between knowledge capital and intellectual capital Polanyi (1967) identifies two dimensions of knowledge within an organization: tacit and explicit knowledge Nonaka (1994) explains that tacit knowledge encompasses both technical and cognitive elements Cognitive knowledge refers to an individual's mental models, including beliefs and viewpoints, while technical knowledge involves specific skills and know-how applicable to particular contexts Additionally, Duffy expands on the dimension of tacit knowledge.
(2001) explains that the latter dimension - explicit knowledge such as procedures, routines is documented and structured with a fixed-content which is externalized consciously
Discussing i the i difference i between i knowledge i capital i and i intellectual i capital, i Roos i (1998) istates i that:
Intellectual Capital (IC) encompasses all processes and assets not typically reflected on the balance sheet, including intangible assets such as trademarks, patents, and brands While knowledge is a component of IC, it extends beyond that to include the management of relationships with external parties like trade distributors, allies, customers, and stakeholders These elements collectively contribute to value creation in modern business practices.
There is a large part of the initial intellectual capital literature contributing into how to define the notion of IC, summarized by the following table 2.1:
Table 2.1 Definitions of intellectual capital
Researchers (year) Definitions Dimensions of IC
Barney (1991a) highlights that intellectual capital possesses an intangible nature and is recognized as a strategic asset within organizations The presence of intellectual capital contributes to enhanced financial performance and provides a competitive edge for businesses.
Technology, i Consumer itrust, i Brand i image, iCorporate i culture i and iManagement i skills
Brooking (1996) IC “is the term given to the combined intangible assets which enable the company to function”
Market i assets, iIntellectual i property iassets, i Human- centered i assets, iInfrastructure i assets
IC i is i defined i as i knowledge i that i can i be iconverted i into i value i IC i is i “the iaggregate i stocks i and i flows i of i its ipotentially i useful i skills, i knowledge i and iinformation”
Human i capital, iStructural i capital i and iRelational i capital
Sveiby (1997) IC i consists i of i invisible i assets i which iresult i in i the i difference i between i a i firm’s imarket i value i and i its i book i value
Internal i structure, iExternal i structure i and iEmployee i competence
Intangible assets are crucial for enterprises as they generate value that can ultimately be reflected as final income in financial statements However, these assets cannot be represented as a specific accounting title within those statements.
Human i capital i and iStructural i capital
Petty and Guthrie (2000); Bontis and Fitz-enz (2002)
IC i “is i a i combination i of i intangible iresources i and i activities i that i allows i an iorganization i to i transform i a i bundle i of imaterial, i financial i and i human i resources iinto i a i system i capable i of i creating istakeholder i value.”
Organizational i capital iand i Human i capital
Rodriguez Anton, Rubio Andrada, and Esteban Alberdi
IC is “the hidden value of a firm which illustrates firm intangible resources that cannot be measured by financial metrics”
Human, iOrganizational, iTechnological, iBusiness i relations, i and iContext
Wang (2011) IC is defined as “an intangible asset, which does not exist in physical form
Human, Customer, Process and Innovation but holds value and can produce future advantages, including competitive advantage to the organization”
Source: The author’s literature review
Following the above-mentioned literature, there is lack of a consensus IC definition; however, it is clear that most prior authors seem to agree:
▪ IC i is i a i multi-dimensional i concept i as i a i sum i of i all i intangible i assets i including iknowledge
▪ IC i includes i knowledge i capital i that i can i be i put i to i use i to i create i wealth;
▪ Accumulating i IC i is i beneficial i to i creating i competitive i advantage i or i business ivalue;
▪ IC i is i a i source i of i intangible i assets i that i often i do i not i appear i on i the i statement i of ifinancial i position;
▪ IC i consists i of i invisible i assets i which i result i in i the i difference i between i a i firm’s imarket i value i and i its i book i value;
▪ IC i consists i of i main i components; i those i are i human i capital, i structural i capital i and irelational i with i stakeholders
Intellectual capital (IC) is defined through various perspectives, but a common element is its focus on strategic intangible resources, such as information and knowledge, which are essential for gaining competitive advantages and sustainably creating value for key stakeholders There is a broad consensus on three primary interrelated non-financial components of IC: human capital, structural (internal) capital, and relational (external) capital This article's analysis and measurement of intellectual capital will concentrate on these components.
Components of intellectual capital
Research by scholars such as Barney (1991), Brooking (1996), Edvinsson and Sullivan (1996), and others emphasizes the significance of human capital (HC) as a vital component of intellectual capital (IC) McGregor, Tweed, and Pech (2004) highlight that human capital encompasses a broader range of meanings than merely human resources, focusing on individual competencies, including knowledge, skills, innovativeness, and talents Barney (1991) further elaborates on human capital to include aspects like training, judgment, relationships, and insights, which represent the tacit knowledge embedded in employees' minds (Bontis & Fitz-enz, 2002) This tacit knowledge can be externalized into explicit knowledge that can be stored in knowledge management systems Additionally, Edvinsson and Sullivan (1996) define human capital in terms of "skills, attitude, and intellectual agility," where skills generate value through knowledge and expertise, while attitude is influenced by personality traits and is less malleable through organizational efforts Intellectual agility refers to the capacity to transfer knowledge across different contexts.
Human capital is vital for organizations as it drives innovation and strategic renewal, enabling them to adapt to environmental changes through the development and implementation of effective strategies (Wright, McMahan, & McWilliams, 1994) In a knowledge-based economy, the significance of human capital continues to grow, as experienced employees become invaluable assets to their firms (Helm Stevens, 2011) A higher level of intellectual capital often leads to increased productivity and higher incomes, making it essential for human resource managers to recruit top talent and cultivate employees' explicit knowledge to gain a competitive advantage (Bontis & Fitz-enz, 2002).
When analysing the contents that should be reported in IC report, Campbell and Abdul Rahman (2010) illustrate the elements of human capital detailed in Appendix 4
Structural capital, as defined by Bontis (2001), encompasses the hardware, software, databases, organizational structure, patents, trademarks, and other resources that employees utilize to support business processes It focuses on the knowledge infrastructure embedded in an organization's routines, which includes technological components and architectural competencies Gold and Malhotra (2001) refer to this as knowledge infrastructure, comprising organizational structure, culture, and technology Additionally, structural capital embodies the learning and knowledge applied in daily activities (Bontis, Bart, & Kong, 2007), with the knowledge retained in an organization after employee departures representing its core (Mouritsen, Nikolaj, & Marr, 2004; Nazari, 2010; Wang, 2011) While human capital serves as the primary factor influencing structural capital, the latter exists independently of human capital (Nazari, 2010; J Chen et al., 2004) For instance, although patents are developed by human capital, they ultimately belong to the organization.
Structural capital is essential for organizations as it encompasses the mechanisms and frameworks that support human capital It serves as the foundational infrastructure, including non-human knowledge repositories such as databases, process manuals, routine procedures, organizational culture, and corporate publications These elements collectively create value for the organization, reinforcing the importance of structural capital in enhancing overall performance and knowledge management.
Structural capital is the most complex component of intellectual capital, as it intertwines with other forms of capital in its definition This study adapts the definitions provided by Bontis (2001) and Campbell and Abdul Rahman (2010) to prevent overlapping meanings In this research, structural capital encompasses technological and architectural elements, including organizational culture, processes, and management philosophy.
IC report, Campbell and Abdul Rahman (2010) illustrate the elements of structural capital detailed in Appendix 5
Relational capital, a key component of intellectual capital, poses challenges in its definition Researchers like Saint-Onge (1996), M'Pherson and Pike (2001), and Wang (2011) equate customer capital with relational capital, emphasizing the importance of customer loyalty and relationships within and outside organizations However, focusing solely on customers may overlook other vital stakeholders, such as shareholders, creditors, and employees (Helm & Stevens, 2011) Thus, relational capital is a more comprehensive term that encompasses all external stakeholder relationships, including suppliers, allies, and trade unions (Bontis & Fitz-enz, 2002; Helm & Stevens, 2011; Levy, 2009; Mouritsen et al., 2004) This broader view includes networks with suppliers, distributors, and branding elements like reputation and brand recognition (Sydler, Haefliger, & Pruksa, 2014) María Viedma Marti (2001) defines relational capital as an organization’s ability to positively engage with the business community, fostering wealth creation through enhanced human and structural capital.
Relational capital is crucial for organizations as it fosters innovation and future growth opportunities According to Kong (2009), effective organizational relationships facilitate knowledge exchange between the organization and its external stakeholders, enhancing the ability to generate creative ideas This implies that organizations that understand the needs of their external stakeholders are more likely to offer improved products and services (Helm & Stevens, 2011) By collaborating closely with stakeholders, firms can gain a competitive edge over their rivals Furthermore, the primary goal of building organizational capability is to cultivate relational capital, which enables companies to pursue sustainable growth opportunities The importance of relational capital is evident in its contribution to both current and future revenues derived from an organization’s customer relationships For stable growth, Youndt and Snell emphasize the need for strong relational capital.
In addition to investing in structural capital to improve organizational processes, managers should prioritize building social relationships to safeguard their organizations against unfair competition and preserve competitive advantages.
When analysing the contents that should be reported in IC report, Campbell and Abdul Rahman (2010) illustrate the elements of relational capital detailed in Appendix 6.
Definition of corporate performance
Corporate performance, as defined by Dorestani (2009), encompasses a range of measures that highlight the critical factors for an organization's success, incorporating both financial and non-financial indicators For decades, organizations have utilized various frameworks to determine the metrics that managers should employ to evaluate performance Since the early twentieth century, DuPont has effectively used a pyramid of financial ratios to connect diverse financial metrics to investment returns, serving as valuable resources for assessing shareholder wealth Key ratio-based measures such as return on assets (ROA), return on equity (ROE), and return on capital employed (ROCE) provide insights into a firm's overall financial performance from multiple perspectives.
Kaplan and Norton (2001) emphasize the inadequacy of financial ratios in reflecting the evolving competitive landscape and strategies of modern organizations, highlighting the limitations of the DuPont pyramid's historical cost focus, which promotes short-termism Researchers argue that in the knowledge-based and innovation-driven era, traditional financial statements fail to capture the economic value of investments in intangible assets, leading to increased information asymmetry and inefficient resource allocation in the stock market (Arvidsson, 2011) The significant disparity between a firm's market value and the book value of its recorded assets has prompted contemporary approaches to quantify intangibles, such as Economic Value Added (EVA), Tobin's q, and market-to-book ratios (Gebhardt, 2002) These indicators adopt a tangible approach to intangibles, with many researchers advocating for the use of EVA, Tobin's q, or market-to-book ratios as measures of a firm's financial performance to effectively address the challenges of quantifying intangibles.
On i the i other i hand, i many i researchers i (F i Chen, i Hope, i Li, i & i Wang, i 2011; i Ming-
Chin et al (2005) argue that in an efficient market, investors value firms with greater investment efficiency more highly To maximize shareholder value, firms should invest until the marginal benefit equals the marginal cost of investment However, due to information asymmetry between management and shareholders, management may deviate from optimal investment levels, resulting in underinvestment (lower than expected) or overinvestment (greater than expected) (Juan Pedro Sánchez & Gomariz, 2012) In perfect financial markets, all positive net present value projects should be financed to enhance firm value Nevertheless, market imperfections, such as information asymmetries and agency costs, can lead to negative net present value projects being undertaken (overinvestment) and the rejection of positive net present value projects (underinvestment) (Healy & Palepu, 2001; Hubbard, 1997) Agency theory explains that both overinvestment and underinvestment stem from asymmetric information among stakeholders Therefore, investment efficiency serves as a key indicator for measuring corporate performance in internal management activities.
In addition to financial information such as investment efficiency measurements and financial ratios, the evolution in corporate performance measurement has led organizations to adopt non-financial metrics that align with their objectives Current trends indicate that financial analysts and investors increasingly rely on non-financial information to assess a firm's value, moving beyond traditional financial statements Previous studies highlight discrepancies in the focus of management on non-financial disclosures, with Vandemaele, Vergauwen, and Smith (2005) noting that companies tend to disclose more about their external relational structures—like customers and distributors—while providing less information on human capital aspects, such as employee education and knowledge Furthermore, Arvidsson (2011) identifies corporate social responsibility as a category of non-financial information that receives minimal attention in corporate disclosures Thus, non-financial measures are essential indicators for owners and management in evaluating corporate performance, although this study narrows its focus to financial information as the primary criterion for measuring performance.
The four-stage stock market valuation model by Dorestani (2009) is used to report corporate performance in accounting literature, as follows:
Figure 2.1 Four-stage model of corporate market valuation
Determinants of strategic management accounting practices
Global competitive pressures, deregulation, and advancements in information and manufacturing technology have transformed our economy, prompting significant changes in the operations of many manufacturing and service industries (Hasen & Mowen, 2012) This evolving environment is reshaping not only production methods and the use of automated and flexible technologies but also organizational structures, business strategies, and managerial philosophies, as noted by Drury (2013).
“To compete successfully in today’s highly competitive global environment companies are making customer satisfaction an overriding priority, adopting new management approaches, changing their manufacturing systems and investing new technologies
These changes are having a significant influence on management accounting system
These i changes i challenged i the i traditional i management i accounting i system i New ibusiness i strategies i have i also i questioned i the i conventional i role i of i management i accounting
As Ashton, Hopper, and Scapens (1991) note:
The investigation by industrialists, academics, and management consultants has led to a prevailing ideology focused on crisis and transformation within the manufacturing sector, prompting a critical examination of the traditional practices of management accounting.
Furthermore, i it i is i claimed i that i traditional i management i accounting i information i had ifailed i to i provide i the i information i requirement i for i organization’s i strategic i purposes
Corporate performance has been critically assessed due to traditional management accounting's inability to meet the information needs that enhance organizational competitiveness and long-term success This perspective, highlighted by Bromwich (1990) and Kaplan (1984), emphasizes the shortcomings of conventional accounting practices Drury (2013) encapsulates these criticisms, shedding light on the pressing need for more effective performance measurement tools.
Conventional management accounting is increasingly inadequate in today's competitive and technological landscape, as traditional product costing systems often yield misleading information for decision-making Furthermore, management accounting practices have become overly reliant on financial accounting requirements, limiting their effectiveness Additionally, there is a significant focus on internal activities, with insufficient consideration given to the external environment in which businesses operate (Drury, 2013, p 562).
The limitations of traditional management accounting techniques have led to the development of strategic management accounting (SMA), which focuses on critical aspects often overlooked, such as customer relations, competitive analysis, and the long-term effects of strategic decisions (Cadez, 2006) Introduced in literature since 1981, SMA has been recognized as a vital tool for gaining competitive advantage, with Simmonds being acknowledged as its pioneer for coining the term (Simmonds, 1981) He defines SMA as the provision and analysis of management accounting data concerning a business and its competitors, aimed at developing and monitoring business strategy This innovative perspective emphasizes the externally-focused role of management accountants (Cadez, 2006) Additionally, Bromwich (1988) expands on SMA by defining it as the evaluation of an enterprise's comparative advantages and the long-term benefits its products provide to customers, as well as the financial returns for the firm over an extended decision-making horizon.
Management accounting plays a crucial role in strategy development, with Strategic Management Accounting (SMA) focusing on external information relevant to an entity While SMA is commonly referenced in the UK, Australia, and New Zealand, the term Strategic Cost Management (SCM) is more prevalent in the United States According to Shank and Govindarajan (1993), SCM integrates financial analysis with strategic management concepts such as value analysis, strategic positioning, and cost driver analysis, highlighting its similarities to SMA However, SMA is often considered broader than SCM Key differences between strategic and traditional management accounting are outlined in Table 2.2.
Table 2.2 Some key differences between strategic and traditional management accounting Indicators Strategic management accounting Traditional management accounting
- provide i information i to i make i key istrategic i decisions
- require i a i stronger i external i focus iregarding i the i behavior i of istakeholders
- aid i in i the i creation i of i operational istrategies
- measure i and i report i both i financial iand i non-financial i performance iensure i efficient i use i of i resources Direction Forward i looking Feedback i looking
Competitor i cost i structure Competitor i product i costs Relative i market i share Relative i profitability Competitor i price i margin
Cost i structure Product i costs Market i share Profitability Price i margins
Customer i analysis Pricing i decision Portfolio i analysis Corporate i decision i support
Profitability i analysis Performance i evaluation Budgeting
Operational i and i management i decision isupport
In the 1990s, numerous researchers, including Bromwich (1990), Ward (1992), Dixon and Smith (1993), Foster and Gupta (1994), and Guilding et al (2000), contributed significantly to the development of the concept of strategic management accounting.
2010) Although i their i definition i and i description i of i SMA i differ i considerably, i three i typical icharacteristics i of i SMA i can i be i drawn i from i their i writings:
- A i long-term, i forward-looking i orientation;
- The i provision i of i both i financial i and i non-financial i information i for i managerial idecision i making
The first original work of SMA practices was recommended by Guilding et al
In their research, Cadez (2006) identified 12 techniques of Strategic Management Accounting (SMA), including attribute costing, brand valuation, capital budgeting, and target costing Cravens and Guilding (2001) expanded this list by adding three more techniques, bringing the total to 15, which include activity-based costing and benchmarking Additionally, Guilding and McManus (2002) introduced three customer-related SMA techniques, such as customer profitability analysis, resulting in a total of 18 techniques categorized into four groups Cravens and Guilding (2001) highlighted three main dimensions of SMA practices: strategic cost management, competitor accounting, and strategic accounting This study further incorporates three customer-focused techniques, referred to as customer accounting, based on the findings of Guilding and McManus (2002).
Intellectual capital measurement models
One significant aspect of the discussion surrounding intellectual capital is its perceived immeasurability (Wall, Kirk, & Martin, 2003) The real challenge lies not in the absence of measurement methods, but rather in the multitude of approaches available, which often yield diverse and contradictory results (Fritzsche, 2012) According to Sveiby (2005), the initial question for any measurement initiative should focus on its purpose Luthy (1998) and Mitchell Williams (2001) categorize intellectual capital measurement into at least three distinct models, as shown in Table 2.3 The quantitative approach aims to assign numerical values to intellectual capital, while the qualitative method utilizes scorecards to identify key elements important to the organization for achieving its objectives.
Table 2.3 Summary of measurement approaches that are mainly used in intellectual capital research
- i Investor-assigned i market i value i (IAMV TM )
- i Value i added i intellectual i capital i coefficient i(VAIC TM )
- i Economic i value i added i (EVA TM )
- i Total i value i creation i (TVC TM )
- i Inclusive i valuation i methodology i (IMV TM )
Quantitative approach – Market capitalization model
According to Sveiby (2005), the market capitalization model provides methods for calculating the value of intellectual capital by assessing the difference between a company's market capitalization and its book value of shareholders' equity This model is characterized by its reliance on capital market values to estimate intellectual capital's worth Key methods within this model, such as Tobin's q, Market-to-book value, and Investor-assigned market value (IAMV™), are briefly discussed in Appendix 8, which is outside the scope of this study The market capitalization model effectively addresses the challenge of evaluating a firm's excess value over its replacement cost-adjusted balance sheet by depending entirely on market mechanisms.
Quantitative approach – Return on assets model
In various ROA methods, authors strive to create an indicator that assesses the efficiency or potential value of Intellectual Capital (IC) This method is calculated through specific formulas and approaches designed to quantify IC's impact on organizational performance.
To assess a company's financial performance, the average pre-tax earnings over a specific period are divided by its average tangible assets, yielding the Return on Assets (ROA) This ROA is then compared to the industry average, and the difference is multiplied by the company's average tangible assets to estimate the annual earnings attributed to intangible assets Finally, by dividing these average earnings by the company's average cost of capital, one can estimate the value of its intangible assets or intellectual capital.
Several commonly applied methods for assessing intellectual capital (IC) are discussed, including the Value Added Intellectual Capital Coefficient, Calculated Intangible Value, and Economic Value Added, as detailed in Appendix 9 Most of these methods utilize indicators derived from historical financial reports as proxies for intellectual capital value However, a significant limitation of this model is that it does not measure the IC required to initiate a company; instead, it focuses on measuring IC during operational phases.
Quantitative approach – Direct intellectual capital model
The evaluation of intellectual capital (IC) components involves various models that consider numerous variables categorized into distinct groups Each group contains specific IC components, which are individually identified and measured before being aggregated to provide an overall assessment of intellectual capital The qualification of these components relies on different scales, including counts, dollar values, and ratios Popular methods in this category, such as Intellectual Asset Valuation and Total Value Creation (TVC™), along with the Inclusive Valuation Methodology (IMV™), are further elaborated in Appendix 10.
The model focuses on identifying various components of intangible assets or intellectual capital, generating indicators that are reported in scorecards Unlike the direct IC model, this scorecard model does not estimate the dollar value of intellectual capital The qualitative models aim to pinpoint what is crucial for the organization and help monitor progress towards stated objectives Popular methods in this category include Intangible Assets Monitor™, Skandia Navigator™, IC Index™, Balanced Scorecard™, and Value Chain Scoreboard A detailed discussion of these methods is summarized in Appendix 11, though it is beyond the scope of this research.
Chapter 2 presents the concepts of intellectual capital, strategic management accounting practices, corporate performance, and reviews some of IC measurement models before developing this study’s research models
This study aligns with the prevailing view that intellectual capital (IC) encompasses strategic intangible resources, such as information and knowledge, which are crucial for gaining competitive advantages It identifies three interrelated components of IC: human capital, structural capital, and relational capital, reflecting a broad consensus in the literature Additionally, Luthy (1998) and Mitchell Williams (2001) categorize IC measurement into three models: a quantitative approach, which includes the direct IC model, ROA model, and market capitalization model; and a qualitative approach, exemplified by the scorecard model In relation to strategic management accounting (SMA) practices, this research builds on the foundational work of Guilding et al.
(2000) and the supplementary studies, this study categorizes 18 SMA techniques into 4 groups related to strategic cost management, competitor accounting, strategic accounting and customer accounting
The four-stage stock market valuation model developed by Dorestani (2009) assesses corporate performance across four key dimensions: productivity, profitability, non-financial indicators, and marketable value Nonetheless, this study primarily emphasizes financial dimensions, which may limit its overall scope.
The following chapter focuses on underlying conceptual frameworks to develop testable hypotheses which answer research questions to bridge research gaps.