The right to control a company is a very valuable right since it provides the
controlling party a numerous perk. These perks include both financial and nonfinancial
benefits such as power and prestige, expense accounts and many more.
Therefore, this shall give concern to various stakeholders such as shareholders,
employees, customers, suppliers, government, communities and groups of
representing certain interest. Fama and Jensen’s “The Separation of Ownership and
Control” (1983) introduced the notion of agency theory that explained “the firm is
seen as a nexus of contracts between individuals with vested interests, which created
an equilibrium that can be accepted by all.” The relationship between the management
team including the chief executive officer (CEO) as agent and shareholders as
principal lies when the principal provided the capital to the company so that agent can
run the company. In return, the management team have a duty to fulfil their
obligations in maximizing the shareholders’ wealth. However, problems can occur in
agency relationship whereby shareholders and the management team have different
attitudes towards risk i.e. different interests and risk preferences. To ensure the agency
problem is reduced, Jensen and Meckling (1976) proposed three control measures in
which 1) monitoring costs, 2) bonding costs, and 3) residual costs. Nevertheless, this
study shall focus on bonding costs in which it requires the management team to
disclose relevant information i.e. financial and non-financial information that enables
shareholders to monitor compliance with contractual agreements and to evaluate
whether the management team have managed the firm’s resources in the interest of
shareholders. Since most companies disclosed financial information in their annual
reports, which is mandatory in nature, the issue arises in determining the disclosure of
non-financial information which is voluntary reporting. Therefore, this study aims to
examine the level of intellectual capital reporting practice among 260 companies
listed on Main Market of Bursa Malaysia. Securities Commission Malaysia (SC) has
introduced the new amended Malaysian Code on Corporate Governance (MCCG)
2017 in addition to what has been spelt out under Bursa Malaysia’s Listing
Requirements (LR) to pave the way for an effective disclosure of non-financial
information. This study is based on annual reports of the abovesaid companies
downloaded from Bursa Malaysia’s website. Hence, this study suggested that two
characteristics of a firm i.e. company size and leverage level can influence the level of
intellectual capital reporting practice of listed companies. This study also suggested
that two corporate governance attributes, i.e., CEO duality and board size can
influence the level of intellectual capital reporting practice of listed companies. The
findings of this study are expected to contribute to the literature work for future
researchers’ reference.
