ROMA Dipartimento

Sidrea International Workshop

TRE di Studi Aziendali

UNIVERSIT DEGLI STUDI

Con il patrocinio di

S I D R E A

MANAGING AND DISCLOSING INTELLECTUAL

CAPITAL AND OTHER NON-FINANCIAL
CAPITALS: EMERGING ISSUES

AGENDA
Wednesday, 15th July 2015
School of Economics G. Fu, Ancona
Managing and disclosing intellectual
Capital and other non-financial
Capitals: emerging issues

Sidrea International Workshop

ISBN 978-88-99198-04-6

Prima edizione (f.to digitale): luglio 2015

Responsabile editing: Flavia Squillacciotti

II
INDICE pp.

Sommario
INTELLECTUAL CAPITAL REPORTING IN ITALY:
EVIDENCE FROM THE FIELD ......................................................... 7
1. Introduction........................................................................................... 7
2. IC reporting: an analysis of the extant literature ................................... 8
3. Design of the study ............................................................................. 13
4. The field study Data analysis ........................................................... 17
5. Discussion and conclusions ................................................................ 29
References .................................................................................................. 35
NEW PERSPECTIVES ON THE ROLE OF IC DISCLOSURE
IN IPOS: THE PARTIAL REDUCTION OF THE COST
OF CAPITAL .................................................................................... 43
Abstract ...................................................................................................... 43
1. Introduction......................................................................................... 44
2. The effect of information disclosure on the cost of capital
in POs.................................................................................................. 48
3. Empirical study ................................................................................... 53
4. Results................................................................................................. 57
5. Concluding remarks ............................................................................ 60
References .................................................................................................. 63
Tables and Figures ...................................................................................... 70
INTEGRATED REPORTING: OPPORTUNITY OR ISSUE
FOR SMALL AND MEDIUM-SIZED ENTERPRISES?
THE CASE OF BOXMARCHE GLOBAL REPORT ....................... 75
Abstract ...................................................................................................... 75
1. Introduction......................................................................................... 75
2. The limitations of financial reporting ................................................. 77
3. Nonfinancial information .................................................................... 82
4. Integrated Report and Integrated Reporting ....................................... 86
5. Integrated Reporting: an opportunity for SMEs?................................ 93
6. The empirical study: BoxMarches Global Report ............................. 94
6.1 Research aim and methodology ........................................................ 94
6.2 BoxMarches profile ......................................................................... 96
6.3 BoxMarches Global Report ........................................................... 101
6.4 Discussion ...................................................................................... 105
7. Conclusion ........................................................................................ 107
References ................................................................................................ 109
A DATA MINING APPROACH TO BUSINESS
MODELLING .................................................................................. 121
Abstract .................................................................................................... 121
1. Introduction ...................................................................................... 121
2. Knowledge generation and business modelling ............................... 123
3. Data Mining, Neural Networks and Structured Neural
Networks .......................................................................................... 126
4. Mining through customers perceptions ............................................ 128
5. Discussion of results and managerial implications ........................... 134
6. Conclusions ...................................................................................... 137
References ................................................................................................ 139
RHETORIC FOR PROMOTING INNOVATIONS IN
ACCOUNTING AND MANAGEMENT FIELDS: A
STRUCTURED LITERATURE REVIEW ...................................... 141
1. Introduction ...................................................................................... 141
2. Rhetoric, persuasion and innovation ................................................ 143
2.1 Rhetoric and innovation ................................................................. 143
2.2 Rhetoric for innovation in management and accounting ................ 147
3. Structured literature review: research questions and
methodology ..................................................................................... 150
3.1 Analytical framework and coding approach .................................. 153
4. Insights and critiques of research on rhetoric ................................... 157
4.1 Journals .......................................................................................... 158
4.2 Authors and articles impact ........................................................... 160
4.3 Themes and research paths ............................................................. 162
4.4 Characteristics of discourses analysed in literature ........................ 164
4.5 Methods and frameworks employed in research ............................ 167
4.6 Findings and implications of the studies ........................................ 172
5. Future research on rhetoric in accounting ........................................ 176
5.1 Reflections for future research on rhetoric in accounting .............. 176
5.2 Limitations of the study and future research .................................. 180
References ................................................................................................ 181
GOODWILL WRITE-OFF AND STRATEGIC CHANGE .................... 191
Abstract .................................................................................................... 191
1. Introduction ...................................................................................... 191
2. Goodwill accounting under the US accounting standards ................ 194
3. Theoretical background and hypotheses development ..................... 195
4. Research methodology ..................................................................... 197

IV
 4.1 Sample ............................................................................................ 197
4.2 Regression model ........................................................................... 198
4.3 Strategic change measurement ....................................................... 199
5. Empirical findings ............................................................................ 199
6. Discussion and conclusion ................................................................ 200
References ................................................................................................ 202
IS THE CASH HOLDING INFLUENCED BY CORPORATE
REPUTATION IN THE BANKING INDUSTRY?
PRIMARY EVIDENCE ................................................................... 205
Abstract .................................................................................................... 205
1. Introduction....................................................................................... 206
2. Methodology ..................................................................................... 207
3. Literature Review ............................................................................. 209
3.1 The banking system ....................................................................... 209
3.2 Reputational risk in a bank ............................................................. 210
3.3 Liquidity and liquidity risk ............................................................. 214
3.4 Measuring the impact of corporate reputation on cash holding: a
primary model ...................................................................................... 217
4. Conclusions....................................................................................... 221
References ................................................................................................ 223
ENTREPRENEURIAL, RENEWAL AND TRUST CAPITAL:
ARE THEY FACTORS INFLUENCING CORPORATE
PERFORMANCE? EVIDENCE FROM ITALIAN FIRMS ............ 227
Abstract .................................................................................................... 227
1. Introduction....................................................................................... 228
2. Theoretical Framework ..................................................................... 229
3. Research method ............................................................................... 234
3.1 Sample ............................................................................................ 234
3.2 Survey data collection ................................................................... 235
3.3 Measures ........................................................................................ 235
3.4. Data analysis .................................................................................. 239
4. Findings ............................................................................................ 241
4.1 First Model: EBITDA..................................................................... 241
4.2 Second Model: ROA ...................................................................... 242
4.3 Third Model: ROI ........................................................................... 244
5. Discussion ......................................................................................... 245
6. Conclusion ........................................................................................ 247
References ................................................................................................ 248

V
SOCIAL DISCLOSURES IN HEALTH CARE: THE HIDDEN
REALITY BEHIND BLOOD TRANSFUSION
MEDICINE ...................................................................................... 253
Abstract .................................................................................................... 253
1. Introduction ...................................................................................... 254
2. Social disclosures in public health organization: the
reasons .............................................................................................. 257
3. The Blood Transfusion System: activities, governance
and organization ............................................................................... 259
3.1. The Blood Transfusion System in Italy ....................................... 259
3.2. The Department of Transfusion Medicine of the Marche Region:
organization and governance ............................................................... 261
4. Why to integrate financial disclosures? The clear
potential of social disclosures in Blood Transfusion
Medicine ........................................................................................... 262
5. Conclusions ...................................................................................... 268

VI
INTELLECTUAL CAPITAL REPORTING IN ITALY:
EVIDENCE FROM THE FIELD
Maria Serena Chiucchi1, Marco Giuliani, Stefano Marasca
Department of Management Universit Politecnica delle Marche
Ancona Italy

1. Introduction
In the last decades it is possible to notice a growing attention around
the intellectual capital (IC) discourse as IC is generally considered one
of the main lever to create a sustainable competitive advantage
(Guthrie, et al., 2012b).
Three main stages of the IC discourse can be identified (Guthrie, et
al., 2012b). The first stage was characterised by the use of grand
theories to create awareness about the strategic relevance of IC in
creating and managing sustainable competitive advantage, i.e. it
focused on what IC is (Catass, et al., 2007; Petty and Guthrie,
2000). The second stage, instead, centred the attention on the impact
of IC on capital markets and value creation processes and on how IC
should be managed in order to create and maintain a sustainable
competitive advantage, i.e. on what IC does (Dumay and Rooney,
2011; Giuliani, 2013; Mouritsen and Larsen, 2005). The third stage is
centred on IC in practice, i.e. on the use of IC measurements and the
interplay between them and IC mobilization and management
(Catass, et al., 2007; Catass and Grjer, 2006; Mouritsen, 2009).
Indeed, it emerged that the effects, the benefits and the drawbacks of
measuring and narrating IC have often been neither realized nor
recognized in practice (Dumay, 2013; Guthrie, et al., 2012b). In
summary, it emerges the need to adopt a practice lens in order to
understand what happens in vivo and develop a critical examination
of IC (Guthrie, et al., 2012b, p. 76).

1
Corrisponding author m.s.chiucchi@univpm.it
 Within the IC discourse, a primary role is played by IC reporting.
IC reporting is considered to be a relevant managerial practice both
for internal purposes, i.e. for visualising, understanding and managing
IC, and for external ones, i.e. for disclosing the value creation process
and consequently support the value spread process (Abeysekera,
2007; Brennan, 2001; Fincham and Roslender, 2003; Guthrie, et al.,
2001; Lev, 2001; Petty and Guthrie, 2000; Seetharaman, et al., 2002;
Van der Meer-Kooistra and Zijlstra, 2001). Nevertheless, the fact that
some IC pioneers companies, like Skandia, have abandoned IC
reporting have contributed raising questions about whether it was
something relevant or just a managerial fashion (Dumay, 2012a;
Fincham and Roslender, 2003; Mouritsen and Roslender, 2009).
Moving from these considerations, some argue that there is the need
to investigate the effects, the benefits and the drawbacks of measuring
and reporting IC in practice in order to understand to what extent IC
measurements and reports are used (or non-used) in the organizations
and in the market and which internal and external elements can
influence their fate (Catass, et al., 2007; Catass and Grjer, 2006;
Chiucchi, 2013b; Dumay, 2012a; Lnnqvist, et al., 2009).
The aim of this paper is to analyse the use of IC reports from a
longitudinal perspective, i.e. from their introduction up to date, in order
to understand the potential organisational levers and barriers to their
adoption and use. In order to achieve this aim, a field study approach
focused on the Italian context has been adopted (Kaplan, 1986;
Roslender and Hart, 2003; Scapens, 1990).
The paper starts with an overview of the extant literature regarding IC
reporting from a performative perspective. The next section presents the
design of the study and the description of the field study. In the central
part, an attempt will be made to make sense out of the case findings and
to develop the theoretical arguments of the study. The paper ends by
presenting some of the insights gained and some of the conclusions
drawn, and proposing future research opportunities.

2. IC reporting: an analysis of the extant literature

According to some scholars, the growing inability to offer a
satisfactory explanation for the difference between the accounting

8
book value and market value of firms led to the creation of a subgroup
of intangibles labelled as IC (Edvinsson and Malone, 1997; Stewart,
1997).
Even if IC has been debated for almost 20 years, it is not possible
to identify a generally accepted definition of it. By way of example, it
is possible to find IC defined as the system composed of all of the
firms intangibles (Meritum, 2002), or as the sum of everything
everybody in a company knows that gives it a competitive edge
(Stewart, 1997), or as a combination of knowledge flows (Mouritsen,
et al., 2001) or of connections between intangible resources
(Chaminade and Roberts, 2003). Moreover, it can be studied by
focusing on its resources (static approach) or by highlighting the
activities carried out to create and develop it (dynamic approach)
(Meritum, 2002). The availability of several definitions and the
consequent lack of a uniform definition of IC allow firms to define it
in an experimental fashion and to develop a plethora of IC reporting
practices (Abeysekera, 2008).
Frameworks for IC reporting identified in the literature identify IC
comprising various categories of assets or capital and adopt different
approaches (e.g. resources/activities, financial/non-financial, etc.)
(DATI, 2000; Edvinsson, 1997; Lev, 2001; Meritum, 2002; Stewart,
1997; Sveiby, 1997). This diversity of reporting practices means that
each firm can set its own reporting agenda according to its specific
purposes. Thus, in practice, it is possible to identify a large variety of
reporting methods and tools ad hoc designed for satisfying the
information needs of a specific organization. In other words, IC and
IC reporting are constructions to justify value creation in the firm
which are influenced by the industry type, the extent of managerial
ownership prior to the initial public offering, the board size, the
organizational and managerial culture, etc. (Abeysekera, 2010;
Bozzolan, et al., 2006; Bukh, 2003; Chaminade and Johanson, 2003;
Chiucchi, 2013b).
IC reporting is an issue approached both from an ostensive
perspective and from a performative one (Mouritsen, 2006). While the
first approach focuses on the technical specificities of an IC report
(what and how it should report), the latter tries to understand which
effects reporting IC generates on the organization. More in depth, the

9
performative perspective, that is the one adopted in this study, calls for
research that aims to investigate, for example, how organizational
actors develop value by drawing on IC, how IC works, how it is
understood and how it is implemented in practice; how IC elements are
mobilized so as to promote certain effects which are context-specific
and invented within the situation in which IC is given meaning; and
how IC can be used as a promoter of organizational change (Dumay,
2009; Mouritsen, 2006; Mouritsen, 2009; Mouritsen and Roslender,
2009). In all, the IC performative research agenda calls for a shift of the
research focus from the production of IC reports to their use.
In order to understand the use of IC reports, it becomes of interest to
understand the reasons for reporting IC, the actors involved in the
process and the main benefits and drawbacks deriving from this
practice.
From the analysis of the extant literature, it is possible to identify
two different (although related) perspectives on IC reporting
(Brnnstrm, et al., 2009). One perspective focuses on measuring the
value of IC and the other takes as its starting point the management of
IC. The argument for the value measuring perspective springs from
the fact that the capital market has valued the firms equity (much)
higher than the book value (Edvinsson and Malone, 1997; Sveiby,
1997). Here, IC research focuses on visualizing the value already
generated by an organization (Boeker, et al., 2005; Fincham and
Roslender, 2003) and the main users of this kind of IC reports are the
external stakeholders. In the managerial discourse, several authors
have presented models of how firms produce value (DATI, 2000;
Kaplan and Norton, 1992). The logic of this perspective is that the
recognition, measurement and reporting of the IC enables the firm to
manage the resources and activities and to deliver sustainable
competitive advantage. In summary, the reasons for reporting IC can
be related to the management of this resource and of the related value
creation process or to the disclosure of IC in order to make the
invisible value visible for the stakeholders.
The two abovementioned perspectives underlay different reasons
(or different expected benefits) for reporting IC that can be
summarized as follows (Andriessen, 2004a; Grjer and Johansson,
2000; Marr, et al., 2003).

10
Grjer & Johansson (2000) Marr et alii (2003) Andriessen (2004)
Corporate governance Strategy formulation Improving internal
Insider gains Strategy assessment & execution management
Investor decisions Strategic development, Improving external
Merger and Acquisitions diversification and expansion reporting
Credit decisions Compensation Transactional and
Tradability Communication to external statutory motives
National accounts stakeholders
Management control

Table 1 Reasons for analysing and measuring IC.

It is important to stress that the mentioned reasons are not exclusive

or static but they can coexist and change over time in dependence of
changes of the external context or of the managerial needs (Giuliani,
2009).
With reference to the actors involved within the IC reporting process,
some scholars have highlighted that they determine the implementation
trajectories of IC projects (Chaminade and Roberts, 2003), and also play
a significant role as driving forces during the early stages in
measurement routine development (Johanson, et al., 2001, p. 418).
More in depth, actors gradually engage with sensemaking and
sensegiving processes (Gioia and Chittipeddi, 1991) useful to assign a
meaning to IC and to understand how they can use IC as a solution to
their practical issues (Dumay and Cuganesan, 2011; Dumay and
Rooney, 2011). In particular, according to Chiucchi (Chiucchi, 2013a;
Chiucchi, 2013b), within an IC reporting project, two actors seems to be
particularly relevant: the sponsor and the project leader. The
sponsor can be defined as the person that promotes the relevance of IC
within the organization, supports the development of the project and
gives legitimation to the IC project, i.e. it is the one that establish that it
has to be done; the project leader is instead the person that develops
in practice the IC project, i.e. the person that is actually involved in the
design and implementation of the IC report and that defines what and
how has to be done. These two persons have to develop an adequate
inter-relationship with the rest of the organization as they can influence
and be influenced the other managers, employees, etc.
Moving from the abovementioned considerations, it is possible to
identify the expected benefits of IC reporting, i.e. improving the value

11
creation process through an adequate management of IC and
increasing the transparency, the quality of the organizational
disclosure and the value spread process by making invisible visible to
the external stakeholders. More in depth, several studies have
underlined that IC reporting supports the managerial decision process,
enables IC management, supports organizational changes and
organizational learning processes, influences the companys market
value as it is value relevant, affects the financial analysts decisions,
etc. (Aboody and Lev, 1998; Bukh, 2003; Chiucchi, 2008; Chiucchi,
2013a; Dahmash, et al., 2009; Giuliani, 2013, 2015; Giuliani and
Marasca, 2011; Mouritsen, 2004, 2009).
As reporting IC is not all sunshine and roses, it is also relevant to
understand the main related drawbacks and barriers. According to the
extant literature, barriers are related to the following aspects
(Chiucchi, 2013a; Chiucchi, 2013b; Dumay, 2012b; Lnnqvist, et al.,
2009): the existence of grand theories, the use of non-financial
indicators, the risk for the IC report and its metrics to rapidly become
obsolete in a quickly changing environment, the efforts needed to
implement the system (in terms of data collection and data processing)
as the implementation of an IC reporting system tends to be
demanding, lengthy and time consuming in practice, and the risk to
incur into a lock in or accountingisation phenomenon (Chiucchi
and Dumay, 2015; Habersam, et al., 2013). The accountingisation
phenomenon occurs whenever accountants apply accounting solutions
to management challenges in an attempt to make the intangible
tangible, i.e. when the IC measurement dominates over the IC
management. This phenomenon can be reduced focusing on
connectivity (Skoog, 2003), using narratives (Dumay and Rooney,
2011; Mouritsen, et al., 2001) and trying to understand how IC
contributes to value creation through visualisations (Cuganesan, 2005;
Cuganesan and Dumay, 2009; Giuliani, 2013; Marr, et al., 2004).
In comparison to the majority of extant studies, this one is not
focused only on the production of IC measurements and reports
(Andriessen, 2004b; Edvinsson and Malone, 1997; Lev, 2001;
Mouritsen and Larsen, 2005) or on their characteristics (Giuliani and
Marasca, 2011; Mouritsen, 2009) but mainly on their use. The latter
appears to be the Achilles heel of IC reporting: despite the plethora of

12
proposed models, their diffusion and use is not so widespread in
practice (Dumay, 2013) and early adopters, such as Skandia for
instance, have abandoned IC measurement and reporting practices.
Therefore we ask what happens to IC reports once they are produced?
More specifically we are interested in understanding if, how and why
they are used or not and if, how and why IC measurement and
reporting practices stabilize (or not) within companies.
Moreover, our research does not offer a snapshot, i.e. referred to
a specific moment, of the practical use of IC measurements and
reports (Chaminade and Roberts, 2003) but adopts a longitudinal
perspective, from the first implementation up to date, in order to
understand if and how the use has evolved over time. In other words,
this paper contributes to the existing literature by examining what
happened to IC reports after their implementation and answering to
the call for IC studies developed adopting a temporal lens (Giuliani,
2009). Finally, this paper in not centred on a single case study
(Chiucchi, 2008) but offers insights collected from several
organisations in order to have a broader view on IC in practice
(Chiucchi, 2013b; Giuliani, 2013), thus we aim also to answer to the
call for investigating IC in practice (Dumay, 2013).

3. Design of the study

Understanding the use of IC reports requires a focus on the
expectations and on the behaviour of the actors involved in the
process itself and on the process itself. In other words, in order to
understand if, how and why IC reports are used and if, how and why
measurement and reporting practices do (or do not) stabilize we need
to focus our attention also on the process leading to it. This is because
how questions usually help to answer the why questions (Lukka,
2007). More in depth, we will try to understand if and how the reasons
which pushed to measure and report IC, the actors involved in the IC
reporting process, the benefits and drawbacks associated to it, the way
the process has been implemented (encountered levers and obstacles)
had a role in determining the use or the non-use of the IC report and
the abandon or the prosecution of IC measurement and reporting
practices.

13
 This research adopts the field study method to investigate the
abovementioned questions. The field study method can be considered
a research design that embraces a relatively small number of
companies, as opposed to a wide-ranging survey or intensive case
enquiries in two or three companies (Kaplan, 1986; Roslender and
Hart, 2003; Scapens, 1990).
In particular we chose the qualitative interview as method to
collect information (Fontana and Frey, 1998; Kreiner and Mouritsen,
2005; Qu and Dumay, 2011). Developing and administering a
questionnaire was rejected as unlikely to produce the necessary level
of detail or depth of insight required regarding the individuals
perceptions. Intensive case research was also rejected on the grounds
that, despite its demonstrated capacity to provide rich accounts of
practice and provocative insights, it may not capture the full range of
such perceptions (Roslender and Hart, 2003). By analysing several
organisations, it becomes possible to understand whether an emergent
finding is simply idiosyncratic to a single case or consistently
replicated in several cases (Eisenhardt, 1989; Eisenhardt and
Graebner, 2007) and understand complex phenomena such as the use
of IC reports. Thus, this study is based on the evidences collected
from 16 Italian companies.
The focus on Italian firms is due to the fact that, from an analysis of
the extant literature, it seems that Italy has become the new, hot bed of
IC research, especially aimed at working side by side with managers
inside organisations in developing IC practices (Dumay, 2013).
Moreover, as the authors of this paper are Italian it was easier for them
to get contacts and develop good relationship with Italian firms rather
than with foreign companies.
Differently from other countries, such as for instance Denmark,
where national projects on measuring and reporting IC have been
launched, in Italy there has not been any national or large-scale projects
and companies begun to measure IC on their own initiative, in different
points in time, with different aims and adopting different frameworks.
Since it is not easily possible to know the total population of
companies that in Italy has ever produced an IC report we adopted a
step by step process. The data collection process was conducted in
spring 2014.

14
 First, we focused on companies which prepared at least one IC
report for internal or external use. Therefore we included in our
research only companies which measure and report IC intended as the
system of intangible resources including human, organizational and
relational capital (Edvinsson and Malone, 1997; Sveiby, 1997). This
means that we excluded companies which measure and report only
specific IC resources such as human capital, for instance.
First, a review of national and international publications within the
IC field has been carried out. More specifically, a research in
SCOPUS was conducted combining the following words:
intangible(s), intellectual capital, Italy, Italian, in the areas of
Business, management and Accounting and social sciences. We
chose SCOPUS since it is recognized as a high quality and
comprehensive publication database (de Moya-Anegn, et al., 2007;
Vieira and Gomes, 2009). The total number of articles containing a
combination of these words was 156. By reading their abstracts, 9
articles were selected which were referred to IC measuring and
Reporting in 8 Italian companies.
Second we also looked for Italian books which could report on
Italian companies measuring and reporting IC. We used Google libri
(Italian version of Google books) and the following Italian key-words:
capitale intellettuale, intangibles-Italia, intangibles-caso,
intangibles-casi and risorse immateriali. We selected books which
contained at least one of these words (or combinations) in the title
and/or in the preview. Excluding common results we identified 22
books from which we could select 13 Italian firms.
Third, a research on Google using the following keywords has been
performed. We used the following Italian keywords: Report capitale
intellettuale, Report intangibili, Bilancio capitale intellettuale and
Bilancio intangibili. The purpose of this step was to collect data about
companies that have not been object of publications but which have
declared to have measured/reported IC.
Fourth, in order to integrate the results of the desk research some
Italian informed persons (scholars and consultants operating in the IC
field) have been interviewed in order to understand if the list produced
after the first and second steps was complete and, in case, identify the
missing firms.

15
 Considering the overlapping cases, a total of 34 companies have
been identified and according to the described methodology they
should represent a large majority of the Italian firms that report IC.
When the name of the company was disclosed, it was contacted
directly. When it was not disclosed, articles and/or books authors
have been contacted in order to get information about the analysed
company and the person to contact.
Out of the 34 identified organizations, 14 participated in the
survey. We interviewed the project leaders. For two companies which
did not accept to participate in the survey, we could gather primary
data by interviewing the consultants who guided the project and we
could also use secondary data such as IC reports and journal articles.
Moreover we could also count on e-mails exchanged with company
referents who, while refusing to participate in this research, gave us
some information on what happened after the production of the IC
reports. As far as the rest of the companies (18) is concerned, it was
impossible to contact 5 of them, due to their liquidation or because it
was impossible to find any contact information on internet, 13 firms
refused to participate in the research.
Even if it was not possible to analyse all the identified companies, the
results of this study can be considered as acceptable as our aim is
exploratory. Therefore our study is not based on a quantitative approach
but on a qualitative one and therefore it is not necessary to have a
statistically relevant number of cases to generalize the results obtained but,
instead, to have cases that permit to understand in depth the
phenomenon, highlight commonalities and differences and possible factors
which affect the phenomenon itself (Eisenhardt and Graebner, 2007).
The main data-gathering technique was the semi-structured
interview because the aim of the analysis was to reach a deep
understanding of the phenomenon under research (Carrington and
Catass, 2007; Fontana and Frey, 1998; Kreiner and Mouritsen, 2005;
Qu and Dumay, 2011; van der Steen, 2009) and to compare different
practical experiences within the IC reporting field. Semi-structured
interviews were selected as a means of data collection because they
are well suited for the exploration of the perceptions and opinions of
respondents regarding complex and sometimes sensitive issues and
they also allow the interviewer to probe for more information and

16
elicit clarification of answers. In this situation, although a list of
questions to submit to the interviewee is prepared beforehand, the
interview unfolds in a conversational manner offering participants the
chance to explore issues they feel are important (Wengraf, 2001, p.
103). The interviews were performed via telephone and face-to-face
as this allows a much higher response rate compared to mail surveys,
the collection of rich data due to a direct interaction with the
respondents and facilitates coverage of a large number of companies
(Burke and Miller, 2001; Cachia and Millward, 2011).
In this study, the interviewees were the CFO/controllers (7), the
CEO (2), the General Managers (2), and the head of Human
Resources (2) as they were indicated as responsible for the IC
reporting projects (they were the Project Leaders). Sometimes they
coincided also with the projects sponsors.
Each interview was designed to develop around the issue of the use
of IC reports. Interviews were conducted during spring and summer
2014 and lasted from 1 to 2 hours each and were all tape-recorded and
then transcribed for analysis. The first contact in the field was via e-
mail. Representatives of companies then approved the research project
and identified the participants in the study. As a first step, the aim of
the project was illustrated to the participants of each organization.
After this, the authors introduced the topics of the investigation.
In order to overcome bias, the analysis was carried out through
analyst triangulation (Patton, 1990; Yin, 2003), thus it was designed in
such a way that one of the researchers was charged of the data
collection, while the others had to examine the interview material and
the notes in order to analyse all the evidence. Post-communications
with the respondents helped the authors to ensure the accuracy of
collected data.

4. The field study Data analysis

Since the aim of our research was to understand the use, stabilization
and possible evolutions of the IC Report, our interview was organized
around the following themes: general information on the first IC report
(e.g. year, duration, promoter, etc.), reasons for measuring and
reporting IC; characteristics of the measurement and reporting project

17
(e.g. personnel involved, involvement of researchers/consultants and
their role, etc.), obstacles and levers in measuring and reporting IC;
benefits and drawbacks; use of the IC report and of IC information
either internally and/or externally (e.g. Who used it? How? To what
extent?); what happened after the first IC report (did the IC report
continue to be produced? How did the IC report evolve/change? Did IC
continue to be measured but in different forms? For how many years?
Whether, when and why did they stop to measure and report IC?).
The majority of the companies that responded to our survey and
that have declared to have been measuring and reporting IC operate in
the private sector (see Table 2). The composition of the whole of
interviewed companies is consistent with the composition of all the 34
identified companies (private companies 74%; public companies 21%;
no profit companies 6%).

No. companies %
No profit 2 13%
Public 3 19%
Private 11 69%
Total 16 100%

Table 2 The interviewed companies.

Worthy of note is that the majority of the companies measured

and reported IC both for internal and external aims (69%) or
exclusively for internal aims (31%). None of them produced an IC
report only for external aims.
Among the companies analysed, 14 have continued measuring and
reporting IC for some years whereas 3 stopped after the first
experience. Meteors have therefore marginal relevance in our sample.
The duration of the experience range from a maximum of 16 years to a
minimum of 1 year. In general (see Table 3), while for all companies
the experience of measuring IC started with the production of an IC
Report, it did not necessarily end in the same form. For the majority of
the companies (12 corresponding to the 75%), the experience of
measuring IC consisted in producing IC reports whereas 4 of them
(25%), at a certain moment, stopped producing an IC Report but
continued measuring IC. In these companies the experience of
measuring and reporting IC evolved in forms and using tools different

18
from the IC report which became part of the corporate and/or of the
local control systems. Companies which are still measuring IC have an
average experience of 11 years (see Table 4).

Companies that No. % Average number of

Min Max
stopped measuring IC companies companies years (experience)
Y 9 56% 3 1 5
N 7 44% 11 4 16

Table 3 The companies that stopped measuring IC.

Years of Stopped Stopped

Numbers
No experience producing measuring
Company Sector of IC Difference INT/EXT
Company (measuring the IC
reports
IC) ICR (Y/N) (Y/N)
A 1 No profit 11 11 0 N N INT/EXT
B 1 Public 8 8 0 N N INT/EXT
C 1 Private 6 6 0 Y Y INT/EXT
D 1 Public 5 5 0 Y Y INT/EXT
E 1 Private 14 14 0 N N INT/EXT
F 1 Private 10 12 -2 Y N INT
G 1 Private 4 4 0 N N INT/EXT
H 1 Private 2 9 -7 Y N INT
I 1 Private 2 2 0 Y Y INT
L 1 No profit 5 5 0 Y Y INT/EXT
M 1 Private 1 1 0 Y Y INT/EXT
N 1 Public 2 5 -3 Y Y INT/EXT
O 1 Private 1 1 0 Y Y INT/EXT
P 1 Private 2 2 0 Y Y INT
Q 1 Private 1 1 0 Y Y INT
R 1 Private 8 16 -8 Y N INT/EXT

Table 4 Data overview.

We will develop the analysis of the interviews considering first the

seven companies that are still measuring and reporting IC. Since the
aim of our research is to understand if how and why the IC Report and
the information on IC are used and if, how and why measuring and
reporting practices stabilize, we are interested in understanding the
experience of those that are still measuring IC. We will then compare
these experiences with those that stopped measuring and reporting IC
in search for commonalities and/or differences.

19
 Table 5 Data overview.

20
 Seven companies are still measuring and reporting IC (see Table
5). We interviewed the PL of the IC reports projects. Two of the
project leaders were also the main users of information and sponsors
of the projects. For one company (R), besides using secondary data
from IC reports and publications referred to the company experience,
we could interview only the consultant who had guided the project
and use some information gathered through a couple of e-mails with a
company referent. In this case we could not have all information we
needed but we decided to include it among the companies analysed
since we deemed the gathered information useful.
As we said these companies are still using an IC report and/or IC
information. As it is shown in Table 5, their experience is different:
there are companies (such as A, B, E and G) which are still measuring
and reporting IC and this is strictly associated (or should we say
dragged?) by the Social Report first, and in some cases and more
recently, by the Integrated Report. For those companies which have
undergone the IC measurement and reporting projects exclusively for
managerial aims (F and H) the IC report has been, sooner or later,
abandoned but IC measurement has not. Finally, company R has a
different experience since it started the IC measuring and reporting
project for both internal and external aims but after some years, and in
connection to the financial crisis, decided to stop producing an IC
Report even if continued to measure IC for managerial aims. As a
matter of fact, in all these last three cases (F, H and R), where IC has
been exclusively or predominantly measured to support IC
management, after ceasing to produce an IC report, some IC measures
have been included in local and/or corporate control tools. When
asked, those companies have provided examples of how some of the
IC measures have continued to be produced or of how over the years
other measures referred to specific capitals (e.g. human, relational,
etc.) have been developed.

so lets say that in these years we strongly focused on intellectual capital. This
year I have just been authorized to work on a project concerning intellectual capital.
[Company F]

as a consequence of changes in the management and due to organizational

assessments, in 2008 we decided not to publish our Bilancio del Valore

21
Intangibile anymore. Some indicators are still measured and controlled but now
they are just an internal management tool, they are no longer disclosed.
[Company R]

some of the evolutions I introduced over the last years, especially to control
the marketing and sales activities, such as, for instance, the monitoring of the
customer engagement, the customer relationship value, etc., as well as to control
the innovation process or to renew the managerial reporting, have been, how can I
say, borrowed from the IC project They are the evolutions of some ideas
and concepts emerged during the IC project and of some of the indicators we used
there.
[Company H]

These companies have also used the IC information included in the

IC reports to trigger managerial actions.

these results [the reference is to IC indicators] gave birth to some actions, some
activities I still remember, in 2003, we changed the supply chain system so we
passed from a non-automatic system to an automatic one with an amazing automated
warehouse. From our point of view, it was completely normal because [we knew] the
ownership didnt want to fire anybody but only to reorganize the workforce. Anyway,
as it always happens thanks to the IC project some worries came up we didnt
notice an hidden internal trouble as in our view it was absurd: people got scared of
being fired. This [the IC report] helped us to communicate in that direction and to
spread new answers. Thenas far as the information system (IS) department is
concerned, we noticed that we didnt ever meet all together in the IS department
there were communication problems because people worked as if they were in silos.
So internally, relying on our experience and capabilities, my colleague and I carried
out a specific project and after a year and a half we got great results.
[Company F]

information on IC led to create actual and prospective customers databases. This

increased the marketing departments knowledge referred to the market and new
actions to acquire customers. For instance, in order to improve the customers
competences in using company products (which were technology-based) training
courses were provided. As far as major customers were concerned, instead, activities
such as company visits and ad hoc meetings with the company designers were planned.
[Company H]

The three companies we are analyzing share another characteristic:

the controller was the project leader (F and H) or was part of the team
which had the responsibility of carrying out the project (R). These
controllers seem to have a very relevant and decisive role in pushing

22
IC measurement forward. Thanks to their participation and close
cooperation with consultants and researchers in all the steps that
characterized the design and implementation of the Social report, they
acquired the competences needed to technically master the system,
became able to manage the IC measurement system on their own and
to push measurement forward. They seem to have a role in favouring
the taking up of IC accounting practices consistent with the company
decision-making process which would satisfy managers information
needs. These controllers also state to have acquired new competences
and knowledge related to other Departments in order to promote
and/or carry out some activities useful for IC management (e.g.
analysis of the quality of the workplace relationships, competitors
analysis, etc.) and have also observed that this has caused problems
related to the invasion of other Departments responsibilities and
sometimes this has impeded the prosecution of the projects in the
proposed direction (e.g. in company F some projects for measuring
relational capital have been impeded because the Marketing manager
considered them his responsibility). Therefore, in these companies
where IC has continued to be measured internally and where it seems
to have had also an impact on actions, the controller has the
characteristics to be considered more a business analyst than a
bean counter (Granlund and Malmi, 2002, p. 311).
In three of the companies that are continuing to measure and report
IC, the experience of measuring IC has been dragged by that of social
reporting: as a matter of fact IC is reported as a section of the IC
report. This origin seems to have determined the fate of IC
reporting. In two cases, even if we asked questions specifically
referred to the IC report and to IC information, interviewees
frequently answered referring to social reporting instead of to IC
reporting and their comments were referred to social accounting
information in general instead of only to IC. IC reporting and IC
measures do not seem to have their own dignity.
For instance, in company B, when asked about the difficulties in
measuring IC, the interviewee answered:

maybe also the social report was not experienced in this way. In fact [managers]
experienced it as a way to retarget those results that they had contributed to reach.

23
 In company G, talking about the benefits of measuring IC, the
interviewee answered:

we realized that our colleagues, not everybody but most of those coming from
the departments involved in the project, certainly considered the social report and its
stimuli as an issue to reflect on, also for what concerns their operational decisions.
So they thought the social report like a modus operandi. So, from this point of view,
stimuli were successful.

Referring to the inclusion of the information on IC into the Social

Report first, and into the Integrated Report after, the interviewee in
company B said:

at the beginning, we prepared a social report with included an intellectual

capital section. Intellectual capital was something added to the social report, also
from a physical point of view. In the recent years, within the integrated report,
intellectual capital got integrated in the section in which we talk about human
capital (the section in which we talk about the evolution of the skills) and in the one
where we talk about relational capital (the section where we describe how we work
with other companies, with institutionswhere we describe how we work).

In these cases (B, G) IC information seem not only to be dragged

by social reporting but also to merge with it. To support our
consideration, we have counted the times the interviewees used the
word social, intangible(s) and intellectual capital (Table 6).

E G B
Social 5 30 24
Intangible(s) 3 11 0
Intellectual 10 0 19

Table 6 Intangible, IC and social reporting.

As we can see , in companies B and especially in company G, the

word social exceed intangibles and or intellectual Capital.
In these cases information on IC was examined together with the
other information included in the Social Report, by the Board of
Directors, to understand the evolution of some social issues through
the exam of indicators. No mention has been given to actions
triggered by this information.

24
 Something different happened in company E, where IC measures
are included in the Social Report as well but seem to be used by
managers and seem also to have an impact on actions.

for example, despite we set goals referred to some indicators, most of

indicators were not linked to goals. While some indicators are measured on a
monthly basis and data are shared, even if data are collected by specific
departments, then they are shared and discussed about by teams, and immediately
they can trigger alert signals and actions

The interviewee in company G also stated that the IC indicators

have been used by the marketing department to analyse the customer
satisfaction and also in focus group with employees, unions and also
with suppliers.
Differently from companies B and G, the PL in company E was the
CFO, whereas in the two other cases it was the General Manager (B)
and the head of Human Resources (G). Consistently with what we
observed for the companies that measured IC predominantly for
internal aims, the fact that the PL is the CFO seems to have some
relevance in the use for managerial aims.
As far as company A is concerned, the first years an autonomous
IC report was produced and it was useful to support a change
management strategy. After some years, the sponsor of the IC report,
the General Manager, who was also the PL and principal user, decided
to combine the IC report and the Quality report in one single
document. In this case the information on IC was deemed essential to
report to the Board of Directors and also to public administration who
fund the company.

the Board of Directors read the results and said ah, but are we really like
this?! Is this a picture of us?! [the IC report] highlighted data, organizational
values that before were very intangibles. I mean, maybe we discussed this or that
aspectbut when we got them written, we assessed them, we could give them a
quantitative/numerical valueso there was a change. It was not only theory
anymore but something written on paper, something we could use to face others
opinions... Also, relationships with public authorities were difficult in that period,
the need to reduce healthcare costs and so on I mean in that period we often used
it to show that we do not only generate costs, but we are a plus: the data show
this. I mean, these are mathematical data so public administrators cannot any longer

25
say no profit organizations help us save money because they use volunteers []
Now we have data to tell them Look! We let you save all these billion of Euros.
This gives us a different status, a different position towards public administrators

The experience of measuring IC, in company A, was pushed by a

quality consultant and this seems to have affected the development IC
measurement, reporting and use. As a matter of fact, IC information
was included in the Riesame della Direzione which is a quality
report prepared by the General Manager (GM) to comment on the
activities undertaken by him over the year and on the quality of these
activities. IC information, therefore, is used, together with the rest of
the quality information, by the GM to show the company performance
to the Board of Directors and also to relevant external stakeholders.
To sum up, in all these cases the IC report and/or the IC
information are used ex-post, to understand what has happened. In
only one case the interviewee has declared to set objectives on some
measures. In all cases where IC information has triggered actions on
IC the CFO/controller was the project leader and could be considered
a business analyst. The CFO/controller seems to have a role in
pushing forward IC information production and in putting it at the
service of managers needs. When the PL is the GM, IC information is
used to account for his/her activity to the Board of Directors and/or to
external stakeholders.
In all these cases, IC information seems to be a personal business
or a business reserved to very few people. IC information continues
to be produced because of the commitment of one person (the PL)
who sometimes, when the PL is the GM, coincides with the principal
user. When the PL is the CFO/controller we noticed a genuine belief
in the usefulness of this information for supporting company
management and a commitment to find ways to put it to the service of
managers by introducing it in other controlling tools or by designing
new tools which contain IC information.
By analysing the interviews another aspect hits our attention:
companies have undertaken these projects because they were pushed
by consultants who already worked with them. All interviewees
underlined the esteem and the appraisal for the work the consultant
had done before the IC project and/or the fact that there was a long-

26
lasting relationship with these consultants. One of the consultant was
referred as a guru by two companies. The specialization of the
consultant seem to have determined the development of the IC project
and also its fate. When the consultant was a quality consultant, IC
information ended up being considered information to show the
quality of the company management (A), when the consultant was an
expert in social reporting, IC information ended up being considered a
part of social information used to show the social performance of the
company, when the consultant was a strategy or controlling consultant
the IC project ended up being used to support managerial action.
In these companies all interviews have stressed the relevance of a
well-developed management accounting system and of the
information system as levers to measure and report IC. This is because
in all cases it has been stressed the fact that measuring IC is time-
consuming and needs for high commitment by those who have to
collect and process information. Sponsorships by the CEO and/or the
entrepreneur have deemed relevant, as well. In all cases consultants
have been considered coach: they have guided and cooperated
actively in measuring and reporting IC during the first years but then,
companies have become autonomous. Sometimes consultants
continue to be referred to just to discuss possible evolutions of the
systems or to be updated about the practical or theoretical evolutions
in measuring and reporting IC.
As far as the nine companies which have stopped measuring and
reporting IC are concerned, first of all we have to underline that many
of them have measured IC for some years: 3 years as average (see
Table 1), with a minimum of 1 and a maximum of 6. They stopped
measuring IC for several reasons.

well, a lot of reasons brought us to stop producing the report, its not the effect
of just a single reason. Anyway, the main reasons are the lost of interest in the
instrument (as a consequence of several internal tensions the project was not of
interest anymore), we had an organization restructure with personnel transfers,
mergers so ... more attention was given to practical issues specifically in those
years, like 2007, I mean in the last edition financial results were excellent and
there was a sort of euphoria, especially from a commercial point of view, so these
issues [issues related to IC] lost their relevance
[Company C]

27
 we dont publish it [the IC report] anymore because now we have to produce a
large number of mandatory documents which replaced the IC report and of the
social one We decided to use just the mandatory documents as the performance
plan, the report on the organizational performance, the statements on the
performance cycle, etc.
[Company D]

when the General Manager, the promoter of the IC Report, abandoned the
company, we stopped measuring and reporting IC
[Company L]

in order to produce IC information, we need to make a strategic effort, and it

was too much, we decided not to produce IC information anymore because expected
initial benefits were neglected .
[Company L]

In some cases companies interviewees declared that they

abandoned measuring IC because the initial promises were neglected.
For instance, in two cases the fact that the report was unable to
communicate the value of the company IC towards a specific
stakeholder, i.e. banks, has been highlighted. In other two cases it has
been highlighted that the lack of the possibility to compare IC
information to other companies information made it difficult to
understand the value of the companys IC.
Seven companies out of nine have companies have stressed the
relevance of organizational and technical aspects of the IC report as
barriers to continue measuring IC. More specifically the following
aspects have emerged as problematic: managers difficulties in using
non-monetary measures (especially because they are used to refer to
monetary measures); managers resistance to trust non-monetary
indicators; difficulties to find cause-and-effect relationships among
indicators, and between non-monetary indicators and company financial
performance; difficulties to find objective IC indicators and to find
relevant indicators able to represent the phenomenon; difficulties to
understand the model which caused scepticism among managers.
We report the observation of one of the interviewee which clearly
express some of the abovementioned barriers.

I was looking for ways to measure items that normally are not measured, I had to
persuade managers, because clearly there were resistances typical when you pass

28
from a certain and universally recognized measure, which is money, to the most
invisible ones, such as those based on perceptions (obtained through questionnaires)
or based on indirect indicators, indirect because I measure the effects and I do
not measure their causes. And very often these things [the invisible measures] are
not so easy to be accepted; especially if we shift from an ex post approach, typical
of the financial report, in which I see what has happened, to a probabilistic one, that
of the IC report. []

The first problem is that if a phenomenon has never been measured, I dont even
know which measure I should choose, from a practical point of view. I mean It is not as
if I had to measure temperature, or pressure and so on here there is a new phenomenon
to be measured and I have to find a measure to represent it the second problem, which
is also bigger, concerns the reliability of the indicators. I mean, if you do not have
historical data, it doesnt mean anything that the value of a phenomenon is 13 or 75, if I
do not have a measuring scale to represent it or if I do not have trends and so on

Only three out of nine companies have highlighted, as a barrier to

continue the project, the reluctance of managers to be involved in the
project. This was attributed to managers concern to be judged, or to
unexpressed reasons. It is worth noting that, paradoxically, these
organizational barriers have been perceived and highlighted more by the
companies who have continued measuring IC. In other words, companies
who have continued measuring IC have perceived the reluctance of
managers to be involved in the project and have found ways to overcome
it, even if only in part.
Going back to companies that have stopped measuring IC, all
companies but one have highlighted that the project has been pushed by a
consultant and what we previously observed with reference to
consultants influence to the fate of the IC project is confirmed. For
instance, when the consultant had a strategic or controlling orientation,
there was an attempt to use IC information to support the strategic or
operational decision making (3 companies). Worthy of note is that when
a consultant company failed, also the client company stopped producing
the IC report. In this case the company had only produced one IC report.

5. Discussion and conclusions

The aim of this paper was to analyze the use of IC reports from a
longitudinal perspective, i.e. from their introduction up to date, in

29
order to understand the potential organizational levers and barriers to
their adoption and use. In order to achieve this aim, a field study
approach focused on the Italian context has been adopted (Kaplan,
1986; Roslender and Hart, 2003; Scapens, 1990).
The first aspect that emerges is related to the IC concept. Scholar
and practitioners have highlighted that IC is a multi-dimensional
magmatic concept which is widely discussed in literature but still
largely unknown in practice (Dumay, 2013; Grjer, 2001; Mouritsen,
2009). Several studies have pointed out that an IC reporting project
usually starts with a discussion about what IC is, as it is often
confused with the ideas of human resources or social capital or
knowledge (Andriessen, 2004b; Chiucchi, 2013a; Chiucchi, 2013b;
Dumay and Cuganesan, 2011; Giuliani, 2013; Giuliani and Marasca,
2011). In other words, from an empirical perspective, IC seems to be
like an empty box that needs to be filled with a meaning that makes
sense for the organization. In fact, the companies that are still
reporting IC managed not only to make sense of IC but also to give
it a sense that was useful for them to make it understandable also for
other members of the organization and appropriate for specific aims.
As mentioned, IC became a part of the strategic control system or a
part of the social report or of the quality report in dependence of
where the IC concept was considered more useful for the
organizational needs and (especially) for the aims of the
sponsor/project leader. In the companies where the IC reporting
practice stopped it seems that the organization did not manage to give
an own sense to IC but it stayed with the one proposed by the project
leader, by the sponsor or, more often, by the consultant. Thus, IC
never acquired an organizational meaning but it remained mostly
understood only by few people. Consequently, when these people quit
from the organization or changed their interests, the IC project faded.
In addition to this case, the failure of the IC project occurred when the
IC concepts, methods and tools did not meet the expectations of the
sponsor and/or of the project leader. This happened for example when
the IC project did not generate the desired benefits in terms of
improvement of the corporate image or of the organizational
performance: as the CFO of a company said: I carried out the IC
project as I guessed that our main shareholder would have been

30
interested in it for me it was a way to be more transparent but I
was wrong as our main shareholder has never read the IC report and
consequently I abandoned the project. In all, the IC project failed
whenever it was not considered to worth the trouble.
This idea develops the one related to the lock-in phenomenon, i.e.
that when IC is introduced from an accounting perspective the focus
tends to be on measuring rather than on managing (Chaminade and
Roberts, 2003; Chiucchi and Dumay, 2015). In the examined cases, IC
entered the organization from different perspectives (accounting,
quality, human resources, external reporting, management accounting,
etc.) and while in some cases IC got locked-in the entry perspective, in
few cases it was able to avoid the lock-in and acquire, over time, a
different focus. In other words, while the mentioned literature is
focused on the typical hypothesis of lock-in, i.e. the one in the
accounting world where measuring dominates over the managing, the
examined cases show that IC can also be locked in other worlds
(quality, social, etc.) in dependence of its point of entry.
In this context the role of the CFO/controller, who is the one that
usually design and implement the IC report, is particularly relevant.
Where the CFO/controller has a traditional approach (bean-counter)
(Granlund and Malmi, 2002, p. 311) the IC project tends to fail;
whether s/he has more a business analyst role (Granlund and Malmi,
2002, p. 311), the IC project has more chances to survive as s/he is
able to make IC interesting and useful for the whole organization, i.e.
s/he is able to operationalize IC and evolve it from an abstract concept
into something concrete.
This last point sheds light on the relevance of the people in order to
determine the success of the failure of an IC project. As mentioned
some studies have analyzed the role of the sponsor and of the project
leader in the implementation stage of an IC project (Chiucchi, 2013a;
Chiucchi, 2013b). This study, due to its longitudinal approach,
underlines the fact that sponsors and project leaders are crucial also to
make the IC project lasting over time if they find something useful in it
for themselves, i.e. if the IC report can satisfy their needs. At the same
time, the sponsor and the project leader seem to have a determining role
in the project failure. For example, the sponsor and project leader of a
company observed that he felt in love with the idea of analyzing IC,

31
that the IC report was his toy for a while, till he found a new toy.
Whether IC is considered as a private business, something reserved to
an lite and therefore as something that just an lite can and should
understand, it seems that the IC project, sooner or later, will finish. This
is due to the fact that the interest will fade or the results will not meet
the expectations of the sponsor/project leader or, as the IC project
belongs to the lite, it will disappear when the elite will quit from the
organization. This part seems to confirm that in some cases IC was
experienced as a managerial fashion, something that managers had to
have but without knowing what an IC project is in depth or what it
does (Roslender and Fincham, 2001).
Another aspect related to the abovementioned aspects is the use of
the IC report. In the archaeology of IC, the IC report was considered a
tool useful to understand the present in order to forecast the future as
IC is considered to be one of the resources that drive the future
organizational performance (Edvinsson and Malone, 1997; Mouritsen
and Larsen, 2005; Sveiby, 1997). In other words, the focus should be
on what will happen and this kind of focus should be found both in
the content of the IC report and in how the IC report is used. From the
analysis it emerges that the IC report is mainly used to have a
picture of the past, to shed light on the activities carried out and on
the results achieved by the organization or by specific areas of the
organization itself. For example, the IC report was seen as an
opportunity to highlight achievements that were not visible in the
other company reports (financial report, social report, etc.) such as the
ones related to reorganization activities, to the quality assurance, to
develop social relationships, etc. Thus, the IC report was a way for
making invisible visible but where the invisible was not an
intangible per se but the intangible related to a specific organizational
area. This idea finds also support from the fact that in several cases
the marketing area did not find the IC project particularly interesting
as its activity is clearly visible in terms of sales; on the other hand, the
R&D, the HR, the IT and the quality departments were often
particularly interceded in the IC report and on the picture it would
give of their activity and results.
This last point suggests also to reflect on the indicators included in
the IC report as it is the whole of indicators that gives a specific

32
perception (a specific picture) of the organization or parts of it. The
problems related to the indicators seem to be one of the main
obstacles for the success of an IC project and one of the main causes
for abandoning it. More in depth, the analysis confirms that IC
indicators tend to have technical problems as they are not self-evident,
are ambiguous, time consuming in terms of calculation and difficult to
understand and to put in relation one-another (Catass, et al., 2007;
Cuganesan and Dumay, 2009; Dumay and Cuganesan, 2011; Giuliani
and Marasca, 2011; Grjer and Johansson, 2000; Mrtensson, 2009;
Mouritsen, 2009). In addition, IC indicators tend to be produced by an
area (usually by the controller), with reference to another area (for
example R&D, HR, IT, marketing, production, etc.) and used by the
top management. The existence of these three roles (producer, user
and observed) and the technical problems imply that an IC indicator
tend to be seen as a way of controlling specific organizational areas
which are reluctant to be measured with a tool they do not understand.
It has to be underlined that this point is not only due to a technical
problem but also to a cultural problem, i.e. the focus on the quest for
the perfect or objective measure instead of centering the attention
on the organizational impact of IC. In summary, if the rise and
development of organizational conflicts is recognized in time and the
focus is not only on the technical aspects of IC, the IC reporting
project has more chances to survive over time.
In all, it seems that an IC project, if not properly managed, can lead
to organizational conflicts that can bring the IC project itself to a
failure. This aspect underlines the need to focus on what IC does
rather than on what IC is also from a practical perspective.
In summary, the success and the failure of an IC reporting project
seem to be determined by aspects related to the fact that IC is a
multidimensional concept, to the culture of the sponsor and of the
project leader, to the approach adopted for implementing an IC report,
to the expectations around the effects of the IC report and to the
technical and organizational problems of the IC indicators.
These findings have both theoretical and practical significance.
This study enriches the IC literature based on an performative
approach, i.e. on what IC does. In fact, the results shows what
happens after IC concepts, methods and tools are introduced within an

33
organization. Moreover, this study contributes to the literature on IC
in practice (Dumay, 2012a, p. 12; Guthrie, et al., 2012a, p. 79) as the
analysis is developed in vivo and not in vitro.
This study presents two main potential limitations. First, the results
can be affected by the typical limitations of the design adopted for the
study, that is, that a statistical generalization is not possible and that
the results may be subject to both interviewee and interviewer bias
and interpretation. Nevertheless, considering the exploratory nature of
the study, one might be able to make an analytical generalization on
some aspects. Second, it was not possible to interview all the
companies that have experienced an IC report. Even so, we believe
that the investigated cases give an almost complete picture of what
happens in reality.
This study calls for more IC research carried out by adopting a
performative approach in order to understand more in depth, the
technical and organizational dimensions of IC. For example, future
research avenues could consist in the analysis of the roles of the IC
sponsor and of the IC project leader and on how their personal
characteristics can affect the IC project or in understanding more in
depth the technical problems of the IC indicators and how companies
can face and solve them and, thus, how they manage to prevent or
solve organizational conflicts.

34
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41
 NEW PERSPECTIVES ON THE ROLE OF IC
DISCLOSURE IN IPOS: THE PARTIAL
REDUCTION OF THE COST OF CAPITAL
Cristiana Cardi1, Camilla Mazzoli
Department of Management Universit Politecnica delle Marche
Ancona Italy

ABSTRACT
Our study contributes to the recent debate regarding the effects that IC
disclosure produces in terms of IPO cost of capital, as measured by the
underpricing. The few studies on the topic have mainly found proof of an increase
in the underpricing as a consequence of a larger IC disclosure. Nevertheless, such
evidence cannot univocally be associated to an increase in the cost of capital
unless the origin of the same underpricing is deeply investigated. In particular, we
test for the possibility that both investors buying in the primary market and those
involved in the secondary market trading largely appreciate IC disclosure and this
in turn is expected to reduce the cost of capital mentioned by previous literature.
More specifically we make use of a content analysis of the IC information
disclosed by a sample of Italian firms in their listing prospectuses and we
disentangle the effects of such a disclosure on the price adjustment (which results
from the primary market dynamics) from those effects produced on the
underpricing (which is also the result of the secondary market behavior). Our
empirical findings show that IC disclosure partially reduces the cost of capital as
the previously documented increase in the underpricing is forerun by an upward
adjustment of the offer price. Moreover, differently from previous literature on the
topic we consider a disaggregated measure of IC disclosure and we reveal that
primary and secondary market investors show specific preferences about
intangible assets.

Keywords: IPO, Underpricing, Intellectual Capital disclosure, Price Adjustment

JEL: G12, G32, M14

1
Corrisponding author c.cardi@univpm.it
 1. Introduction
For the last two decades, firms have been facing increasing
worldwide competition. As a reaction to the new challenges and in
order to create and maintain their competitive advantage, many firms
have largely invested in intellectual capital (also called intangible
assets) in terms of research and development, customer base creation,
staff and brand development, and so on. Intellectual capital reporting
has increased over the years, despite still constituting a relatively
uncommon practice (Unerman et al, 2007; Guthrie et al., 2007). In
fact, even though a firms evaluation is largely dominated by
quantitative financial data, disclosing qualitative information about
intangible assets is expected to enable a more precise evaluation of a
companys business (Holland, 2006; Buhk, 2003; Holland and
Johanson, 2003; See and Rashid, 2011), thus reducing the information
asymmetry between the firm and its stakeholders. The issue is
particularly relevant when information asymmetries are considered as
a determinant of the cost of capital. In fact, it is commonly expected
that enhanced disclosure reduces the information asymmetries
between the firm and its potential investors and consequently lowers
the rate of return they require (Diamond and Verrecchia, 1991).
A setting in which the relationship between the disclosure of
intangible assets and the cost of capital becomes particularly interesting
is when companies go public. In fact, IPOs provide a context in which
information asymmetry is abnormally high; companies issuing IPOs are
less known to investors and analysts because they are still new in the
market, leading to greater uncertainty about their prospects (See and
Rashid, 2011). The disclosure of Intellectual Capital (IC) in an IPO
prospectus thus provides an important opportunity to reduce this gap in
information asymmetry, potentially lowering the cost of capital,
generally measured by the underpricing. Previous literature consistently
maintain that underpricing represents a reward for investors taking part
to the IPO and, therefore, it brings a cost for the issuing firm which
leaves money on the table by selling shares at a discount on the
expected market price2. That being so, a large IC disclosure is likely to
2
See Ljungqvist (2007) for a review of the literature about underpricing and its possible
explanations.

44
restrain the cost of capital in terms of a lower underpricing as a
consequence of an increase in the information production. To our
knowledge, very few studies have attempted to provide empirical
evidence on the relationship between the IC disclosure and the
underpricing, and the few studies that have been done have reached
inconsistent results. In particular, Dimovski and Brooks (2006), by
studying a sample of Australian IPOs issued between 1994 and 1999,
found that, greater disclosure about intangible assets (apart from the
goodwill variable that is non-significant) reduces the uncertainty of the
IPO and then the cost of capital as measured by a lower underpricing.
Such a result is consistent with the body of literature starting from
Benveniste and Spindt (1989) which maintains that firms that have
greater uncertainty surrounding the true value of the shares (i.e. firms
which disclose less information in the IPO) are more likely to have
revisions in their offer prices and also to trade far from their true value
on their first day of trading3. Opposite results were obtained by Singh
and Van der Zahn (2007), who empirically examined a sample of 334
Singapore IPOs launched between 1994 and 2004. Contrary to their
expectations, they found that a larger IC disclosure was associated with
a larger underpricing and they provide possible explanations for the
positive link they exhibit in terms of litigation risk, marketing-
advertising strategy and also extensive bidding up carried out by
unsophisticated traders.
Despite they do not specifically focus on the IC disclosure,
Hanley and Hoberg (2012) investigate the effect that strategic
information provided into the prospectus (such as the risk factors
and managements discussion)produces in terms of the underpricing
of the IPO an also in terms of price adjustment (percentage
difference between the offer price and the midpoint of the range)
According to the interpretative framework already discussed for
Dimovski and Brooks (2006), they hypothesize that any information
about the firm that is included in the IPO prospectus is likely to
provide a reduction in the ex ante uncertainty surrounding the IPO;
such a reduction in the information asymmetry is expected to enable

3
This happens also because underwriters, who are unsure of the price of an issue, are likely to
set wider offer ranges to provide greater flexibility in setting the final offer price (Hanley, 1993).

45
offer prices to get closer to the true value of the company (i.e. a
smaller price adjustment) and allows trade price to do the same (less
first-day underpricing). Nevertheless, contrary to the expectations,
they find that the risk factors section increases the magnitude of the
offer price and also, the larger the managements discussion, the
greater the price adjustment. With reference to the underpricing, they
find evidence of its increase due to a large disclosure of the risk
factors and no evidence regarding the managements discussion.
As such, previous literature has not yet been able to solve the
puzzle regarding the role of IC disclosure in the IPO cost of capital.
In this present paper we propose a new interpretation of the
relationship between the IC disclosure and the IPOs cost of capital,
one that might also explain the inconsistencies in the results between
previous studies. In particular, we test for the possibility that both
investors buying in the primary market and those involved in the
secondary negotiations largely appreciate IC disclosure and this in
turn is expected to reduce the cost of capital theorized by previous
literature. More specifically institutional investors buying in the
primary market are expected to accept higher offer prices as a
consequence of the less information asymmetry they suffer4.
Accordingly, the underwriter is expected to revise upward the offer
price both as a response to the larger demand (Hanley, 1993) and
also as a consequence of the reduced costs that institutional investors
incur in order to collect information about the firm (Sherman and
Titman, 2002; Sherman, 2005).5

4
With regard to the IC disclosure that is considered in this paper, previous literature has
emphasized the difference between the information that is available to the public and the
information that is conveyed during private meetings to which institutional investors take
part (Holland and Johanson, 2002; Garcia-Meca, Parra, Larran and Martinez, 2005).
Nevertheless, academic literature has paid little attention to the private channel due to the
scarcity of available data or to a misconception that private channels merely repeat
information already in the public domain (Tasker, 1998a). In this paper, due to the absence
of available data on the private information that is disclosed by firms, we use the public
content of the prospectus as a proxy of the information that is given to institutional
investors in the primary market.
5
A partial adjustment phenomenon could also take place, according to Hanley (1993). This
theory suggests that underwriters only partially adjust offer prices to the demand as a reward
to institutional investors who reveal information about the demand in the pre-issue period.
Nevertheless, as the IC disclosure is expected to adjust offer prices upward, the potential

46
 Despite the upward revision of the offer price, the underpricing is
expected to increase as well, as a consequence of the large IC
disclosure performed by the listing firm; consistent with Singh and
Van der Zahn (2007) we hypothesize that an intense IC disclosure
induces a potential aggressive bidding up of the market price by
unsophisticated secondary market traders who do not want to miss a
good opportunity. This hypothesis is also consistent with the
literature examining the relationship between share prices and
specific intellectual capital indicators (Lev and Sougiannis, 1996;
Ballester et al., 2003), which shows that share prices are positively
associated with customer satisfaction (Ittner and Larcker, 1998) and
estimates of R&D assets (Lev and Sougiannis, 1996).
In other terms, what we expect is that a larger IC disclosure
enables the issuer to keep the offer price high (thus directly reducing
the cost of capital) and also drives the market price up, which
anyway indirectly represent money that are left on the table. That
being so, IC disclosure might partially reduce the cost of capital as
the increase in the underpricing is forerun by an upward adjustment
of the offer price.
The first innovative and novel contribution of our paper therefore
consists in considering the effects of IC disclosure on the IPO cost of
capital as a whole by disentangling the effects that a larger
disclosure of IC produces in terms of an increase in the issue price
from the effects that are produced in terms of market price.
Moreover, as a second contribution here we assess IC disclosure in
great depth, by taking into account 87 items grouped into six IC
dimensions (as suggested by Cordazzo, 2007) that are individually
used as explanatory variables for the two IPO price dimensions
(price adjustment and underpricing). This approach is different from
previous papers on the topic, which have generally considered an
overall indicator of IC disclosure, or just a small number of items. A
disaggregated measure of IC disclosure is used to test for the
possibility that primary and secondary market investors appreciate
different and specific information about the intangible assets of a

partial adjustment suggested by Hanley (1993) could be less partial as a result of the larger
disclosure.

47
firm. If it is so, some IC variables could influence the bookbuilding
process and the resulting offer price, while others could exert their
effects on the secondary market investors, thus influencing the
market price. Such evidence is expected to be of great interest for
firms which voluntarily disclose internally selected IC information
lacking a gold standard for the IC disclosure.
As a third contribution, we employ IC disclosure variables that
are considered, not only in terms of a dummy variable that signals
the presence of information in the IPO prospectus, but also in terms
of how complete the information is that regards the specific item we
are considering.
Our results suggest that greater disclosure (particularly about the
processes that firms carry out) enables issuers to leave less money
on the table as it effectively reduces the uncertainty surrounding the
bookbuilding process, as revealed by a larger price adjustment.
Moreover, we find that greater disclosure (particularly regarding
research and development plans) can also be responsible for an
increase in the market price as investors see a positive sign of the
firms future potential, and thus aggressively bid for the shares (as
measured by an increase in the underpricing). That being so, we
empirically demonstrate that IC disclosure is largely appreciated by
both primary and secondary market investors and this in turn
suggests that firms should extensively communicate their intangible
assets as a mean to reduce the IPO cost of capital.
The remainder of the paper is organized as follows: in section 2,
we review the literature on the relationship between IC disclosure
and the cost of capital in IPOs; in section 3 we describe the
empirical study while a discussion of the key findings is presented in
section 4. Section 5 concludes.

2. The effect of information disclosure on the cost of capital in

IPOs
Previous literature has extensively analyzed the effects that larger
information disclosure produces in terms of the cost of capital for a
firm in different frameworks. Some authors empirically demonstrate
that an increased disclosure helps to reduce the cost of capital a firm is

48
requested to stand (Barron and Qu, 2014; Easley and OHara, 2004;
Hughes et al., 2007; Lambert et al., 2008; Botosan, 1997 and 2006;
Barry and Brown, 1985; Handa and Linn, 1993; Coles et al., 1995;
Diamond and Verrecchia, 1991, Lev 2001). Nevertheless, other
authors show that a larger set of information about a firms assets is
likely to increase the cost of capital for the company (Richardson and
Welker, 2001; Bushee and Noe, 2000; Botosan and Plumlee, 2002;
the Financial Executives Institute, 1994; Zingh and Van der Zahn,
2007; Kristandl and Bontis, 2007)6.
This inconsistency might be partly due to the differences in the cost
of capital measures used (George et al., 1991; Stoll, 1989). In fact, in
the absence of a directly observable measure, the cost of capital has to
be estimated, but academics are still debating about the best way to do
this (Botosan, 2006). Empirical studies suggest that the above
mentioned inconsistency may also be attributed to the different types
of disclosure: aggregate disclosure (Botosan, 2007; Hail, 2002); social
disclosure (Richardson and Walker, 2001); timely disclosure (Botosan
and Plumlee, 2002; Gietzmann and Ireland, 2005); and the modern
concept of intellectual capital disclosure (Singh and Van der Zahn,
2007; Kristandl and Bontis, 2007). As such, results are contradictory
as some studies find a positive relationship, others maintain a negative
link, and some cases find no relationship at all (Botosan and Plumlee,
2002). To obtain a better understanding of this debated relationship, it
is first necessary to select the most appropriate measure of disclosure
and the proper cost of capital depending on the framework that is
considered.
This present paper is focused on IPOs, we therefore make use of
underpricing and price adjustment as indicators of the cost of capital
and we consider the intellectual capital information included into the
listing prospectus as our measure of disclosure. In fact, IC information
is crucial when a company decides to issue securities to the public
since IPOs are characterized by abnormally high information
asymmetry (Guo et al. 2004; Singh and Van Der Zahn 2007, See and

6
For a review of the academic research on disclosure and cost of capital see Botosan (2006)
or Mangena, Pike and Li (2010).

49
Rashid, 2011). Moreover, underpricing7 is widely recognized as the
elected measure of cost of capital in the IPO setting (Singh e Van Der
Zahn, 2007) and also the, price adjustment, despite less covered by
previous literature, deserves attention as an expression of the pricing
dynamics.
For the purposes of the present paper information asymmetries are
considered as the most important determinants of the cost of capital in
IPOs. Theories of asymmetric information are based on the existence
of discrepancies of information between the players involved in an
IPO (Welch, 1989; Rock, 1986). Beatty and Ritter (1986) and Shrand
and Verrecchia (2002) demonstrate that greater disclosure before the
IPO is linked to lower underpricing. The logic behind this view is
based on the theories which suggest that enhanced disclosure reduces
asymmetric information and enables the offer price to get closer to the
true value of the company (Diamond and Verrechia 1991, Kim and
Verrecchia, 1994; McNichols and Trueman, 1994; Welker, 1995;
Coller and Yohn, 1997; Healy et al., 1999; Levz and Verrecchia 2000,
Zambon, 2003).
With specific reference to the disclosure of IC in IPOs, Dimovski
and Brooks (2004 and 2006) were the first to investigate its role in the
level of underpricing. They examined 262 Australian IPOs issued
between 1994 and 1999 and found that the underpricing could in part
be explained by market sentiment, forecast dividend per share yields,
underwriter options, and share options. But the study also revealed a
negative correlation between the underpricing and the information
reported about a set of other intangible variables. As such, they
maintain that a larger disclosure of IC reduces the ex ante uncertainty
of the IPO and allows shares to be traded closer to the true value of
the firm.

7
In his 2007 review article, Ljiungvist examines the papers that have tried to identify the
possible determinants of underpricing. Ljiungvist identifies the most important theories that
relate to information asymmetry (Rock, 1986; Benveniste and Spindt, 1989; Benveniste and
Wilhelm, 1990; Spatt and Srivastava, 1991; Ibbotson, 1975), institutional reasons (Hugues
and Thakor, 1992; Benveniste, Busaba, and Wilhelm, 1996; Taranto, 2003), control issues
(Brennan and Franks 1997), and behavioral approaches (Welch, 1992; Ljungqvist, Nanda and
Singh, 2006; Loughran and Ritter, 2002).

50
 To the best of our knowledge, the only other study dealing with the
link between IC disclosure and underpricing is that by Singh and Van
Der Zahn (2007). The aim of their study was to investigate the expected
negative relationship between IC disclosure and the level of
underpricing on the Singapore exchange, bearing in mind the concepts
of asymmetric information and ex-ante uncertainty previously
supported by the studies on the topic. Still, their empirical evidence
revealed the opposite, i.e. that a positive correlation exists between
underpricing and the disclosure of IC information. This result was more
significant for companies that are more dependent on Intellectual
Capital, but it remained significant across all sectors. The authors offer
a number of explanations for their findings. The first one is related to
litigation risk and based on the idea that companies deliberately absorb
the cost of lower issue profits, keeping the price low, in order to reduce
the possibility of future litigations and loss of reputation due to the risk
of not obtaining the expected benefits linked to IC (Tinic, 1988;
Hughes and Thakor, 1992; Hensler, 1995). Nevertheless litigation risk
is not significant in a number of countries, including Australia (Lee,
Taylor and Walter, 1996), Finland (Keloharju, 1993), Germany
(Ljungqvist, 1997), Japan (Beller, Terai and Levine, 1992), and the
United Kingdom (Jenkinson, 1990). Furthermore Intellectual Capital is
considered a key variable in competitive advantage (Barney, 1991);
thus the company would not give this kind of information if it were not
sure to obtain a given advantage. The second approach Singh and Van
Der Zahn offer is linked to the hypothesis put forward by Demers and
Lewellen (2003), which states that the issuer keeps the price low in
order to attract media attention and, in turn, benefit from the subsequent
advertising about the firms products. However, a major problem with
this explanation relates to the unknown influence that the IC
information actually has on the media.
The third potential explanation is based on signaling theory (e.g.
Allen and Faulhaber, 1989; Grinblatt and Hwang, 1989; Welch, 1989).
As for the marketing view, the issuer is expected to fix a lower offer
price, foregoing higher returns in the future through the equity market.
When the issuer has more information about a companys value
and about the risk linked to cash flow volatility, underpricing should
be a signal of the real high-quality of the firm. Low-quality firms,

51
meanwhile, have an incentive to mimic the signals made by high-
quality firms. However, due to fears of being punished if cheating is
detected, low-quality firms are unlikely to use all of the same
signaling mechanisms as their high-quality equivalents. By setting the
offer price sufficiently low to discourage low-quality firms, a high-
quality firm could use IC disclosures as a strategic signaling
mechanism. Lacking the IC superiority of high-quality firms, a low-
quality firm is unlikely to respond with high IC disclosure levels if
unsolicited statements about the firms IC capabilities fail to
materialize.
However, a wide range of possible signals exist that could be used
instead of underpricing. For example, to signal their high quality,
firms could opt for a well-recognized underwriter (Booth and Smith,
1986), auditor (Titman and Trueman, 1986), or venture capitalist
(Megginson and Weiss, 1991; Lee and Wahal, 2003). Nevertheless,
Singh and Van Der Zahn (2007) also consider an increase in the
underpricing as possibly due to an increase in the secondary market
price. In fact, unsophisticated traders could aggressively bid up the
market price as a reaction to the large IC disclosure and due to the fear
of missing a good opportunity if the potential that is enclosed in the
IC disclosure materializes.
With reference to the further IPO pricing measure that is involved
in this study, Hanley and Hoberg (2012) provide an empirical analysis
on the relationship that exists between the strategic information
disclosed into the IPO prospectus and the price adjustment. Despite
they do not focus specifically on the IC disclosure, they consider
different intangible information that are provided into the prospectus
such as the risk factors section and the management discussion and
analysis section . The authors find that the risk factors section
increases the magnitude of the offer price and also, the larger the
MD&A, the greater the price adjustment. With reference to the
underpricing, they find evidence of its increase due to a large
disclosure of the risk factors and no evidence regarding the
management discussion. In other terms, contrary to their expectations,
they find that an increased IC disclosure is likely to reduce the cost of
capital for the listing firm in terms of a larger price adjustment but it is
also feasible to produce a significant underpricing.

52
3. Empirical study
In order to disentangle the effects of the IC disclosure on the
primary and secondary market dynamics we employ the following
two measures of the cost of capital:

i) price adjustment, PA (equation [1]), and

ii) underpricing, UP (equation [2]).

PA (OP MFP) / MFP [1]

UP (MP OP) / OP [2]

where: PA is the price adjustment which is here considered as s direct

expression of the cost of capital8; OP is the final offer price of the
IPO; MFP is the midpoint of the initial filing price range [i.e. (higher
price + lower price) / 2]; UP is the underpricing and it is here
considered as an indirect measure of the cost of capital that the listing
firm generates by selling shares at a discount on the expected market
price9.; and MP is the first day closing market price.

Hypotheses
We then empirically test the following hypotheses:
The first hypothesis deals with the price adjustment as an
expression of the consultations that occur between the issuer, the
underwriter, and the funds that take part in the pre-issue period. In
particular we maintain that a larger IC disclosure at this point of the
pricing process reduces the uncertainty that funds suffer and also the
costs they should stand in order to collect information, according to
Sherman and Titman (2002) and Sherman (2005); this is expected to
enable the issuer and the underwriter to keep the offer price relatively
high thus generating a positive relationship between the price

8
An upward adjustment of the offer price in the primary market represents money that the
listing firm is effectively saving.
9
See Ljungqvist (2007) for a review of the literature about underpricing and its possible
explanations.

53
adjustment and the IC disclosure. More specifically, we hypothesize
that the price adjustment is influenced by the IC variables that are
more difficult to understand, like the one relative to the company
processes, human resources, strategies and information technology,
because primary market investors are supposed to appreciate this
information more than secondary market investors.
The second hypothesis deals with the effects that the IC disclosure
produces on the underpricing, as an expression of the market price
reaction. In accordance with the above mentioned literature about the
link between IC disclosure and market price (Lev and Sougiannis,
1996; Ballester et al., 2003), we hypothesize that a larger disclosure
produces greater underpricing as due to an increase in the market price.
More specifically, we expect that secondary market investors favor IC
variables that are easier to understand such as those concerning the
research and development activity and relationship with customers.

Research design
Our sample is made up of the 74 firms that went public on the
Italian Stock Exchange (Borsa Italiana) for the first time between
2004 and 201410. For each of the firms included in the sample, we
obtained the IPO prospectus from Borsa Italiana and we analyzed its
content in order to build an IC disclosure index, according to the
method proposed by Cordazzo (2007). We carried out a content
analysis based on 87 indicators grouped into the following 6
dimensions:
1. Human resources
2. Customers
3. Information technology
4. Processes
5. Research and Development
6. Strategies

The method proposed by Cordazzo (2007) is appropriate for the

present context because she adds to the model introduced by Bukh et

10
80 firms originally listed on Borsa Italiana, but due to some missing data the sample is
reduced to 74.

54
al. (2001b) and AIAF (2002) some indicators that are important in the
Italian framework that is the one we analyze, such as the role of trade
union organizations. For each of the 87 indicators, we assigned a
score ranging from 0 to 3 to each of the 87 items, depending on the
depth of the information provided. Once all of the evaluations for each
of the 87 items were collected, we built an IC disclosure index for
each of the 6 k-dimensions included into the analysis as follows:

SC
i 1
i
ICDI k [3]
n *3

Where:
ICDIk is the disclosure index for each of the 6 dimensions we are
considering (ICDIRD; ICDIIT; ICDIPROC; ICDIHR; ICDICUSTOM;
ICDISTRAT)11;
i is the item we are considering among those belonging to each of the
6 dimensions;
and SCi is the score we attributed to the specific item (which ranges
from 0 to 3).
We also collected data on the control variables from the Universoft
database and from Thomson DataStream. Table 1 provides a
description of the control variables we derived from the literature on
underpricing and price adjustment. In particular, we considered
control variables referring to the characteristics of the IPO (IPO) and
variables that describe the economic condition of the firm that is
going public (FIRM).

Table 1 List of control variables

11
ICDI_RD (Research and development); ICDI_IT (Information technology); ICDI_PROC
(processes); ICDI_HR (human resources); ICDI_CUSTOM (customers); ICDI_STRAT
(strategies).

55
 To test the impact of the IC disclosure on the pricing process that
takes place during the bookbuilding, we estimated the regression
reported in equation [4]:

PA k ICDI k Controls [4]

The dependent variable is the price adjustment (PA), which

measures (as shown in Equation [1]) the percentage difference
between the final offer price and the midpoint of the price range.
Independent variables were divided into two groups. The first group
contains the core explanatory variables for this study, which are those
describing the degree of IC disclosure in terms of the six dimensions
suggested by Cordazzo (2007), as described by equation [3]. The
second group (controls) includes a set of the control variables that
have commonly been used in the IPO literature on the price
adjustment (Hanley, 1993 and Hanley and Hoberg, 2012) (as
described in table 1).
We then went on to study the effect of the IC disclosure on the
market price by running a second regression (Equation [5]), whose
dependent variable is the underpricing (UP), as measured by the
percentage difference between the closing price at the end of the first
trading day and the IPO offer price, net of the market performance on
the same day. The set of explanatory variables is partially different
from the one used in in Equation [4], as it includes the explanatory
variables that have been proposed in the literature on IPO
underpricing (Leone, Rock and Willenborg, 2007; Guo, 2006; Wyatt,
2008 and 2014) (as we discussed in the note to table 1). The PA is
then added in order to take into account the bookbuilding results,
according to Hanley (1993):

UP k ICDI k PA Controls [5]

As multicollinearity can be a serious concern in the OLS regression

analysis, we built a correlation matrix before running equation [4] and
equation [5]. Significant correlations were observed especially within
the core explanatory variables (IC disclosure dimensions); variables

56
showing a Pearson (Spearman) correlation higher than plus or minus
0.5 were then dropped from the database, as table 2 shows12.

Table 2 correlations between core explanatory variables

Below, we present some descriptive statistics about our sample. In

particular, table 3 shows that firms belonging to our sample tend, on
average, to disclose more frequently IC information regarding
strategies and research and development, thus suggesting a possible
awareness about the enthusiasm of investors for such information.
Table 4 provides information in terms of the variables that might
influence a larger IC disclosure by firms. In particular, it shows that
firms belonging to IC intensive sectors (such as banks, financial
sector, health care, media, software components, support service,
technological equipment e pharmaceuticals according to Mangena,
Pike and Li, 2010) disclose more IC about their intangible assets than
firms operating in IC non intensive sectors. Moreover, the disclosure
of IC increases with firm age. This might suggest that firms that have
been working in the market for more years are more inclined to
inform their stakeholders about their intangible assets in order to
compensate for the lower growth perspectives they can offer.

Table 3 - Descriptive statistics for single IC disclosure indexes

Table 4 - Average IC disclosure values for firms belonging to IC

intensive vs. IC non intensive sectors and according to firm age

4. Results
After controlling for a set of variables that might explain the price
adjustment generated during the pre-issue period, we find that the only
dimension of IC disclosure that impacts the way the offer price is fixed
is the description of the processes (ICDI_PROC) that the firm carries
12
In particular, with reference to the core variables, the Relationship with customers,
Strategies and IT variables have been dropped because of their large correlations with the
other three core variables. Correlations among control variables were also observed and, in
order to avoid multicollinearity we dropped variables correlated with others.

57
out during its activity, as shown in table 5. The positive sign of the
relationship reveals that, as expected in hypothesis 1, when institutional
investors have a wide range of IC information available to them for
free, they are more willing to accept a higher offer price and this in
turn, allows the quoting firms to reduce the cost of capital. Moreover,
as the investors taking part to the primary market are usually
investment managers, they generally have plenty of resources which
enable them to particularly appreciate IC variables that describe in deep
the way the firms works, such as the information concerning company
processes. This results is consistent with Garcia-meca et al. (2011) who
maintain that information about the processes carried out by firms is the
most reported to financial analysts in private meetings prior to IPOs,
together with information about strategies and customers.
With reference to the control variables, of the IPO characteristics,
the number of underwriters (UW) and the demand coming from
institutional investors (INST_DEM) both significantly influence the
price adjustment. In particular, a larger number of underwriters
determines a higher offer price, in line with Dimovski and Brooks
(2004 and 2006). In fact, underwriters receive their compensation
proportional to the IPO proceeds, but their slice is also proportional to
the total number of underwriters involved. As such, in order to obtain
a proper commission, they have to increase the offer price as much as
they can. The relationship of the price adjustment with institutional
demand (INST_DEM) is also positive. In this case, the explanation is
even more deductive as it is founded on the basic market operating
principle: the larger the demand coming from funds, the higher the
offer price is set.
Finally, the debt ratio (DEBT) and the return on equity (ROE) are
the two economic characteristics of the firm that can influence the
pricing process in the bookbuilding. In particular, and as expected,
firms with less debt and firms that produce a larger return for their
equity investors are sold at a higher price thanks to their good
economic situation. Moreover, the negative sign of the variable that
deals with the age of the firm (AGE) could suggest that, although new
companies bear a certain degree of uncertainty and information
asymmetry, mature firms that have been operating in the market for
many years may be less appealing in terms of future growth and, as a

58
consequence, their offer price has to be kept low in order to induce
investors to negotiate. This last evidence is also consistent with
Hanley and Hoberg (2012) who find that greater ex ante uncertainty
as measured by lower firm age is associated with greater price
adjustment.

Table 5 The effects of IC disclosure on the price adjustment

Moving on to the determinants of underpricing, the first variable

that deserves attention as an explanatory variable is the price
adjustment (PA). The positive and significant sign of the PA on UP
indicates that any effects that is revealed on the underpricing is linked
to what has already occurred during the bookbuilding. In other words,
as largely maintained by previous literature, the price adjustment is a
good predictor of the IPO initial return (Hanley, 1993). As far as the
core variables are concerned, we find a positive and significant
relationship between the disclosure of research and development
(ICDI_RD) and the underpricing, as expected in hypothesis 2. We
suggest that enhanced disclosure about research and development
activities could encourage secondary market investors to bid up
aggressively due to their positive expectations about the firms
creation of future value (Bontis, 2001; Garcia-Meca et al., 2005).
Furthermore investors might be afraid about losing a good opportunity
to buy profitable stocks. Thus, we can suggest that the fear of the
regret of losing the potential value linked to the intellectual capital,
should it occur, represents an additional incentive to bid the market
price up. This result confirms the previous literature (Amir and Lev,
1996; Ballester et al., 2003; Mangena, Pike and Li, 2010) and
indicates that unsophisticated investors find IC variables that are
easier to understand (such as Research and Development expenses)
more relevant for share evaluation.
As far as the control variables are concerned, of the IPO
characteristics, the percentage of insiders (INS) has a negative and
significant influence on underpricing. This means that the larger the
number of pre-IPO owners selling in the IPO, the smaller the
underpricing. In other terms, we could argue that secondary market
investors do not appreciate a large amount of shares being sold by pre-

59
IPO shareholders and that this prevents them from aggressively
bidding the price up.
With reference to the economic characteristics of the listing firm,
the total amount of assets that a firm owns prior to the IPO (ASSET)
is positively linked to the underpricing. Once again, this evidence
suggests that positive information about the firm is likely to drive the
market price up as a result of secondary market investor confidence in
the firms future prospects.

Table 6 The effects of IC disclosure on the underpricing

5. Concluding remarks
Our study contributes to the recent debate regarding the effects
that IC disclosure produces in terms of IPO cost of capital. Previous
studies fail in providing a consistent interpretation of the above
mentioned relationship, probably due to the specific focus on a
single IPO pricing measure (underpricing), which thus fails to
consider the IPO pricing process as a whole. In particular, previous
studies have not been able to disentangle the effects that IC
disclosure produces on the offer price from the effects that are
revealed in the secondary market by means of the market price and
then interpret an increase in the underpricing as a larger cost of
capital that the firm suffers in the IPO. Nevertheless, the evidence of
a larger underpricing induced by a considerable IC disclosure cannot
univocally be associated to an increase in the cost of capital, unless
the origin of the same underpricing is deeply investigated. As a first
innovative contribution of this paper we consider the effects of IC
disclosure on the IPO pricing process as a whole, by examining the
effects that IC disclosure produces on both the price adjustment,
during the pre-issue period, and on the underpricing, as revealed on
the first day of trading. Moreover, we enrich our analysis by
considering a detailed measure of IC disclosure: 87 items grouped
into six IC dimensions (Cordazzo, 2007), evaluated both in terms of
their inclusion in the IPO prospectus and in terms of how complete
the information provided is. The analysis is based on data collected
from 74 Italian firms that went public between 2004 and 2014. Our

60
findings suggest that greater IC disclosure influences the
bookbuilding pricing process in terms of an increase in the issue
price as a consequence of reduced information asymmetry. In
particular, information about the processes employed by the firm to
perform its activities is appreciated by institutional investors, who
take part in primary market negotiations. At the same time,
information about the firms intangible assets are glad to secondary
market investors, who bid the market price up when in-depth
information is disclosed about the firms research and development
activities. As such, we conclude that, a large IC disclosure generates
an increase in the cost of capital according to Singh and Van Der
Zahn (2007) and Hanley and Hoberg (2012). Nevertheless, such an
increase is revealed to be partial as the increase in underpricing is
forerun by an increase in the offer price. In this sense, we reveal for
the first time the role of IC disclosure in partially reducing the cost
of capital for firms going public. These new findings have practical
implications for the various players involved into an IPO. As far as
the issuer is concerned, awareness about institutional investors
enthusiasm for information about processes should help issuers put
together a good IPO prospectus that prevents money from being left
on the table unnecessarily, thus reducing the cost of capital.
Moreover, as the market price is also used as a marketing tool for
firms, the issuer should also direct attention toward research and
development information in order to please secondary market
investors. Nevertheless, this knowledge could also lead issuers to
adopt opportunistic behaviors towards both primary and secondary
market investors, inducing them to buy shares under conditions that
are largely favorable for the issuer. Such an evidence claims for a
urgent need of a standard regulation regarding the way IC
information is disclosed.
Future improvements of this research might deal with the long-
run performance of the firms listed on the Borsa Italiana. Such an
analysis would enable us to investigate whether the IC information
disclosed actually rewards the interests of both primary and
secondary market investors in terms of a good long-run performance
of the shares they bought. Moreover, further research should be
performed to investigate whether the results presented here can be

61
IC classification dependent in order to shed light on the pros and
cons of the different IC classification that are available in the
literature on intangible assets.

62
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Tables and Figures

Table 1 List of control variables

Variable Label Description

IPO year YEAR Year in which the IPO took place

Number of shares that were offered to
Size of offer SIZE
investors
Dummy variable (value is 1 if the IPO
Bookbuilding BB
is offered through a bookbuilding)
Bookbuilding price range divided by
% range RANGE
the range midpoint
IPO
Amount offered by pre-IPO
characteristics % insiders INS
shareholders divided by IPO proceeds
(IPO)
Number of underwriters taking part in
Number of UW UW
the IPO
Dummy variable (value is 1 if the IPO
Exchange EXCH
is in MTA)
IPO proceeds PROC Money raised in the IPO
Number of shares asked by
Institutional demand INST_DEM
institutional investors
Debt ratio of the company as an
Debt ratio DEBT
average of the last 3 years
Return on equity of the company as an
Return on equity ROE
average of the last 3 years
Free cash flow of the company as an
Free cash flow FCF
average of the last 3 years
Revenues of the company as an
Revenues REV
average of the last 3 years
Firms main Total assets of the company as an
Assets ASSET
features (FIRM) average of the last 3 years
Dummy to identify IC intensive
sectors. IC intensive sectors are: banks,
financial sector, health care, media,
Sector dummy SECT software components, support service,
technological equipment and
pharmaceuticals, according to
Mangena, Pike and Li (2010).
Number of years the company has
Years of activity AGE
been operating in the market

Note: Some of the above listed variables are used as possible

determinants of both the price adjustment and the underpricing (year,
age, sector, insiders, number of underwriters, and IC disclosure

70
variables). Others are specific to one of the two pricing measures and
are thus used as determinants for that measure only. In particular, as
far as the economic characteristics of the firms are concerned, we
make use of debt-ratio, ROE, and FCF for the price adjustment, which
involves more sophisticated investors; while we use assets and
revenues for the underpricing, thus taking into account that secondary
market investors might be less skilled in examining the economics of
a firm. With reference to the IPO characteristics, exchange and IPO
proceeds are considered as more appropriate for the underpricing as
they are of interest to secondary market investors, while the
institutional demand, the bookbuilding procedure, the size of the offer,
and the percentage range are likely to be more influential for primary
market investors.

Table 2 Correlations between core explanatory variables

ICDI_HR ICDI_RD ICDI_PROC ICDI_CUST ICDI_STRAT ICDI_IT
ICDI_HR 1
ICDI_RD 0.2684 1
ICDI_PROC 0.3676 0.3776 1
ICDI_CUST 0.4891 0.4834 0.5969 1
ICDI_STRAT 0.5029 0.6221 0.5619 0.6441 1
ICDI_IT 0.3398 0.462 0.5712 0.5784 0.5128 1

Note: In order to decide which variables were to be cut from the

analysis, we built 3 conceptual categories: the first one, including
ICDI_CUST and ICDI_HR, informs about the relationships the firm
is able to create and maintain with its employees and with its
customers; still, as ICDI_CUST was most problematic in terms of the
number of variables it correlated with, it was removed from the
analysis. ICDI_STRAT and ICDI_RD represent the second category
and provide information about the firms future plans, but
ICDI_STRAT presented a higher number of correlations, which
would need to be managed, and was thus cut from the analysis. For
the same reasons, we also cut ICDI_IT that, together with
ICDI_PROC, provides information about the firms activity.

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Table 3 Descriptive statistics for single IC disclosure indexes

Mean Std. Dev. Min Max

ICDI_HR 0.313 0.102 0.172 0.793

ICDI _RD 0.316 0.201 0.000 0.933

ICDI _PROC 0.296 0.178 0.042 0.750

ICDI _IT 0.259 0.257 0.000 1.000

ICDI _CUST 0.308 0.192 0.042 0.750

ICDI _STRAT 0.358 0.140 0.123 0.649

Note: Here reported the Mean, standard deviation and min-max

value within the sample for the 6 IC dimensions considered into the
analysis: ICDI_RD (Research and development); ICDI_IT
(Information technology); ICDI_PROC (processes); ICDI_HR
(human resources); ICDI_CUSTOM (customers); ICDI_STRAT
(strategies).

Table 4 Average IC disclosure values for firms belonging to IC

intensive vs. IC non intensive sectors and according to firm age
Number Avg ICDI

IC intensive 25 0.6512

IC non intensive 49 0.3032

< 10 years 21 0.2595

< 25 years 23 0.3054

> 25 years 30 0.6221

All 74 0.4208

Note: Firms have here been split into IC intensive sectors (banks,
financial sector, health care, media, software components, support
service, technological equipment e pharmaceuticals according to
Mangena, Pike and Li, 2010) and non-intensive sectors. They have
also been categorized into young firms (less than 10 years of activity),
mature firms (between 11 and 25 years of activity) and largely mature
firms (More than 26 years of activity).

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Table 5 The effects of IC disclosure on the price adjustment
Coeff. SE P>t
SIZE -2.70E-11 2.20E-11 0.224
BB -0.00733 0.018602 0.695
RANGE -0.0531 0.124409 0.671
INS -0.02505 0.022134 0.263
UW 0.028878 0.010122 0.006 ***
INST_DEM 0.009941 0.001988 0.000 ***
DEBT -0.00093 0.000407 0.026 **
ROE 0.000768 0.00033 0.024 **
FCF -0.00039 0.001537 0.798
SECT 0.016429 0.021865 0.456
AGE -0.00052 0.000316 0.083 *
ICDI_RD -0.00266 0.055439 0.962
ICDI_PROC 0.150982 0.057776 0.012 **
ICDI_HR -0.21608 0.129912 0.102
cons -0.03143 0.048901 0.523
Number of obs = 67
R-squared = 0.5829
Root MSE = 0.0664

Note: the first group of variables refer to the characteristics of the

IPO; the second group deals with the characteristics of the listing
firms, and the third group is made up of the core variables regarding
the IC disclosure.

Table 6 The effects of IC disclosure on the underpricing

Coeff SE P>t
PA 0.777324 0.203956 0.000 ***
YEAR 0.009744 0.016506 0.557
INS -0.06106 0.035913 0.095 *
EXCH 0.011556 0.028781 0.690
PROC -3.11E-11 1.44E-10 0.830
ASSET 9.23E-09 5.18E-09 0.080 **
REV -1.74E-08 1.61E-08 0.285
SECT -0.00589 0.033104 0.860
AGE 0.000035 0.000561 0.950
ICDI_HR -0.09727 0.150201 0.520
ICDI_RD 0.147948 0.081976 0.076 *
ICDI_PROC -0.11099 0.10182 0.280
cons -19.4189 33.10071 0.560
Number of obs = 70
R-squared = 0.3409
Root MSE = 0.1144

Note: the variables in the first group refer to the characteristics of

the IPO; the second group deals with the characteristics of the listing

73
firms; and the third group is made up of the core variables regarding
IC disclosure.

74
 INTEGRATED REPORTING: OPPORTUNITY OR
ISSUE FOR SMALL AND MEDIUM-SIZED
ENTERPRISES? THE CASE OF BOXMARCHE
GLOBAL REPORT
Mara Del Baldo1
Department of Economics, Society & Politics School of Economics
University of Urbino Carlo Bo
Urbino Italy

ABSTRACT
Does the integrated report represent the best tool of accountability? If so, why
and for which companies? Studies and empirical research in this area have been
mainly addressed to large enterprises, neglecting the integrated reporting of (and
for) small and medium-sized business (SMEs) and the factors that may hinder or
facilitate its adoption and effectiveness. The paper aims to fill this gap and to offer
insights and reflections on the benefits capable of being derived from the adoption
of integrated reporting and their relationship with specific SMEs attributes. The
empirical analysis, which is referred to an Italian SME which is among the first to
have introduced the global report- allows us to identify the benefits of integrated
reporting and verifying how these stem from the orientation to sustainability and to
the level of responsibility of the entrepreneur.
The findings of the study suggest that when an authentic commitment to social
responsibility, sustainability and transparent disclosure exists, the integrated report
improves corporate disclosure and acts as a driver for stakeholders dialogue and
stakeholders commitment.

Keywords: global report, integrated report, integrated reporting, nonfinancial

information, small and medium-sized enterprises (SMEs)

1. Introduction
The topic of integrated reporting (IReporting) and integrated report
(IR) is one of the new frontiers with implications both in terms of
1
Corresponding author mara.delbaldo@uniurb.it
academic researches and of management applications on which the
scholars who contribute to the development of the Social and
Environmental Accounting Research (SEAR) are been confronting in
recent years (Eccles et al., 2010; Eccles & Serafeim, 2011; Jensen &
Berg, 2012; Parrot & Tierney; 2012; Gray et al., 2014; Zambon, 2003;
Cinquini & Tenucci, 2011; Lai et al., 2013). This frontier marks the
transition from the Financial Reporting system to the IR systems,
involving new trajectories, theoretical and political processes. There is
a growing international interest in the concept of integrated (financial
and nonfinancial) reporting, as evidenced by the recent releases of the
International Integrated Reporting Framework and other international
organizations (IIRC, 2013 and 2014; IFAC, 2013; WICI, 2014).
Today, more and more companies are publishing corporate social
responsibility or sustainable reports to supplement their annual report.
However, the problem of how to integrate the financial reporting with the
nonfinancial reporting has not yet been solved. The presence of different
frameworks for financial reporting (IAS-international accounting
standards- and IFRS - international financial reporting standards-
principles), as well as the presence of several standards for non-financial
reporting (GRI, PWC Value Reporting Initiative G4, GRI, 2014),
makes the process of integration difficult. In recent decades, several
contributions have addressed the issue of the relationship between
financial and non-financial reporting and focused the limits
(transparency, incompleteness, redundancy) of these different approaches
and communication tools. At the same time there is increasing
speculation that integrated reporting constitutes the preferred solution.
Studies and empirical research in this area have, however, mainly
focused on large enterprises, neglecting the integrated reporting of
small and medium-sized business (SMEs) and the factors that may
facilitate its adoption and effectiveness.
Departing from these premises, the work addresses the issue of the
relationship between financial reporting and SEAR (social,
environmental and accountability reporting) (Gray at al., 2014) both
through a literature review and the empirical analysis focused on a case-
study and based on the action research methodology, which has been
recently developed in the context of social and environmental research,
through the direct involvement with the company under investigation.

76
 Why does a company decide to combine financial, social and
environmental performance into a single report? Do the global
report or the so called integrated report represent the best tools of
accountability and the best solution for reporting? If so, why and for
which companies? Does IR represent an opportunity for large and
global firms or does it involve small and medium-sized companies?
The study winds itself around these questions with the aim of
contributing to filling the afore- mentioned gap and to offer lines of
reflection on the benefits deriving from the adoption of the
integrated report (greater clarity about relationships and
commitments, deeper engagement with all stakeholders, better
decisions with economic, social and environmental merit, lower
reputational risks) and their relationship with specific attributes of
SMEs. The empirical analysis is related to an Italian SMEs, not
listed, which is among the first to have introduced the global report.
Findings allow us to identify the benefits of integrated reporting and
verify how these stem from the orientation to sustainability,
transparency and to the level of responsibility of the entrepreneur,
showing that when an authentic commitment to social responsibility
and sustainability and transparent disclosure exists, the integrated
report improves corporate disclosure and transparency and acts as a
driver for stakeholders dialogue and stakeholders commitment.
The research design develops through a deductive and inductive
approach. The first one is aimed at describing the theoretical framework
(sections 2, 3, 4 and 5) and it consists of a literature analysis focused on
financial, non financial and integrated reporting. The inductive method
is based on the analysis of a research case focused on an Italian small-
sized enterprise and, specifically, on the motivations for adopting the
integrated report, the process of implementation, the standard used, as
well as the benefits, the criticality and aspects of improvement (section
6). A discussion follows regarding aspects which have emerged and
concluding reflections (section 7).

2. The limitations of financial reporting

A more cohesive, holistic and efficient approach to corporate
reporting that communicates the full range of factors which materially

77
affect the ability of an organization to create value over time, and
draws together other reporting strands is required and advocated by
both the academic, managerial, and institutional contexts. In recent
years awareness has increased about the difficulty traditional systems
of financial reporting have in thoroughly representing the complexity
which typifies companies (Andriessen & Tissen, 2001, Lev, 2001,
2004; Pike et al., 2001), as well as justifying the stock value attributed
to them (Andriessen, 2002) and supporting the judgment of
stakeholders regarding their performances (Elkington, 1997; Kaptein
& Wempe, 2002).
The growing inadequacy of traditional systems of financial
reporting in answering increasingly structured requests for
information has been revealed in: a loss of trust in the reliability of
information presented in the financial report; too much of a focus on
economic performance; and an insufficient consideration of financial,
operational, strategic and reputational risks (Slywotzky & Drzik,
2005; Fombrun & Gardberg, 2000; Rayner, 2003). Enron and
WorlCom in the USA, HiH, Ansett, and Harris Scarfe in Australia,
and Swissair and Parmalat in Europe, are just some examples which
demonstrate the failure of international standards (IAS and IFRS) in
ensuring the reliability of information contained in the financial report
(Satava et al., 2006). In traditional systems of financial reporting weak
points seem to remain despite the tightening of regulations.
Furthermore there has been an intensification in the efforts of national
and international organizations made in improving the quality of
information contained in the financial report (Archambault &
Archambault, 2005). In particular, the IFRS practice statement on
management commentary uses KPIs (key performance indicators) to
best represent the system of the companys risks and resources and to
visualize intangible resources.
Against such a gradual loss of informational power, there has been
a rising demand in information requested by investors (Wasly &
Shuang Wu, 2006) and an increase in the interests of managers to
make available a system of information necessary for guiding
increasingly complex organizations (Mendoza & Bescos, 2001).
The need to observe and account for the effects generated by
corporate management on the globality of performance, sustained by

78
the stakeholders view, has stimulated the managers interests in
extending the range of observation to the perspective of the triple
bottom line (Elkington, 1997; Clarkson, 1995; Davemport, 2000).
Only the monitoring of performances in a broad sense allows the
measurement and management of corporate sustainability (Funk,
2003; Kiernam, 2001; Wheeler et al., 2003). The financial reporting
represents a limited response in this sense, as it does not allow for a
complete vision of economic, financial, social and environmental
performance and is therefore considered an insufficient tool for
guiding corporate and stakeholder decisions (Jensen, 2001; Reynold,
et al., 2006; Winn, 2001). Furthermore it is limited in expressing
judgment on resources which determine prospects of future
performance (Banrey et al., 2001) and on intangible resources (Aaker,
1989).
Over the past decade companies have been facing growing
pressures to address social and environmental issues (Young &
Marais, 2012; Arvidsson, 2010; Basu & Palazzo, 2008; Kolk. 2008;
Kolk & Pinkse, 2010) and to take into account the conformance to
economic, social and ethical expectations from diverse stakeholders
groups (Freeman et al., 2010) as well as their impact on society (Lee,
2011). Civil societys awareness of the need for CSR (corporate social
responsibility) has rapidly increased in the last years. CSR can be
broadly defined as the extent to which firms have integrated on a
voluntary basis social and environmental concerns into their ongoing
operations and interactions with stakeholders (Godos-Diez et al.,
2011; Uhlaner et al., 2004). In other terms, CSR is a concept
whereby companies integrate social and environmental concerns in
their business operations and in their interaction with their
stakeholders on a voluntary bases (EC, 2001).
There are many different ideas, concepts and practical techniques
that have been developed under the umbrella of CSR research,
including corporate social performance (Carrol, 1979; Wood, 1991);
corporate social responsiveness (Ackerman, 1973); corporate
citizenship (Waddock, 2004); corporate governance (Jones, 1980;
Freeman & Evan, 1990); corporate accountability (Zadek et al., 1997;
Gray et al., 1996); sustainability and triple bottom line (Elkington,
1994) and corporate social entrepreneurship (Austin et al., 2006).

79
Sustainability development is development that meets the needs of
the present without compromising the ability of future generations to
meet their own needs (WCED, 1987: 43). Each of these diverse
efforts share the common aim: the attempt to broaden the oblations of
firms to include more than financial considerations (Freeman et al.,
2010: 235). Such a broad theme has in the past decade attracted the
attention of researchers from diverse disciplines, as well as policy
makers and economic operators (Garriga & Mel, 2004).
According to companies strategy of transparency, information can
be the basis for corporate sustainability reporting (Cisi & Bechis,
2007). The concepts of CSR and sustainability are linked with the
transparency toward stakeholders. Recently, there has been a
substantial increase in corporate awareness of environmental and
social performance and a concomitant desire to publicly report such
results (Murphy, 2005). This derives from a variety of reasons: to
comply with regulations; to reduce the cost of future compliance; to
comply with industry environmental codes; to improve the relations
with the stakeholders. Moreover, reasons of social and environmental
reporting are related to expected improvements in competitive
advantage, in a companys legitimacy and reputation and are
connected to a sense of social responsibility and desire to adhere to
societal standards (Morhardt et al., 2002). As a result, companies, and
especially multinational corporations, are increasingly adopting CSR
and sustainability reporting practices (Conley & Williams, 2005;
Cooper & Owen, 2007). A recent KMPG survey has revealed that, in
2011, 95 percent of the 250 largest global companies now report on
their CSR activities.
Even if accurate financial information remains extremely
important, it is becoming a less and less complete story in a
knowledge economy where an increasing percentage of a companys
intangible assets are not shown and included in the balance sheet. On
the one hand, increasingly more managers, analysts and investors are
directing their attention toward KPIs to make projections about future
financial performance. On the other hand, environmental and social
metrics have become more important to investors. At the same time
that the complexity of financial reporting has increased, the need for
nonfinancial information has increased (Eccle & Krzus, 2010: 79).

80
 Both these tendencies the need to recognize and assess the
economic and financial performance as well as the willingness to
include the repercussion of corporate activity within the profile of
ethical, social and environmental performance, and therefore the
responsible conduct of companies and their leaning toward
responsibility, explain the increasing need for new tools and methods
of accounting (social reports, environmental reports, sustainability
reports, codes of conduct and ethical codes, intellectual capital
reports).
Different frameworks have been proposed on how to use
nonfinancial information to supplement financial reporting. Among
the models reviewed in the ICAEW report Institute of Chartered
Accountants in England and Wales ICAEW (2003) - in which report
eleven proposed business reporting models were included the most
widespread are: the Balanced Scorecard (Kaplan & Norton, 1996); the
sustainability report guidelines developed by the GRI (G3, G4), and
the Value-Reporting Framework developed by PwC (2009). The first
one was developed mainly for internal management and reporting
purposes, although it is relevant for external reporting as well. The
GRI and PwC begun their work in the late 1990s. The goal of GRI
was to produce a reporting framework for providing stakeholders with
relevant information on a companys economic, social and
environmental performances. In contrast, the PwC Value Reporting
Initiative (the so called Corporate Reporting) was focused on
identifying information in which analyst, investors, and chief financial
officers were interested in making investment decisions that went
beyond the required financial information, but with a little attention to
ESG (environmental, social and governance) factors and introducing
industry-specific frameworks, the KPIs, and associated XBRL
(extensible business reporting language) taxonomies, developed on
the basis of global surveys of analysts, investors, and executives of
different industries (Eccles & Krzus, 2010).
The response companies have shown to the loss of the informative
power of traditional annual reports has been through the development
of the aforementioned complementary systems of reporting. These
provide management with the opportunity to make available
information which is of use in assessing the effectiveness and

81
efficiency of the company with regards to areas of performance not
considered in the financial report as well as to add a voluntary
communication tool in the disclosure practices of the company.
Initially the need to make available information essential for
responsible management capable of contributing to the creation of
corporate value favored the start of complementary accountability
systems in the form of environmental and social reports. Subsequently
these two documents came together to form a single statement seeking
a homogenous vision of economic-financial, environmental and social
results (Higgins, 2002) and played a part in the development of
sustainability reports. The complementary informational systems are
included in both sustainability and intellectual reporting. The former
system accounts for the companys sustainability over time and
represents in a linked form economic, social and environmental
performance. The latter system aims at offering a representation of
intangible resources available to the company (Pedrini, 2007). The
intangibles are the main value drivers (Edvinsson, 1997) and are
referred to the concept of intellectual capital (IC) which embraces
human, organizational and relational capital (IFAC, 1998; WICI -
Work Intellectual Capital Initiative2). (Sveiby, 1997a; Nahapiet, &
Ghoshal, 1998).

3. Nonfinancial information
Nonfinancial information comprises three main categories:
intangible assets (intellectual capital and other intangibles); key
performance indicators, and environmental, social and governance
(ESG) parameters (Perrini, 2006; ICGN, 2008). Nonfinancial
information are strictly related to accountability.
Accountability can be simply defined as the duty to provide an
account (by no means necessarily a financial account) or reckoning of
those actions for which one is held responsible. This involves two
streams of responsibility: the responsibility to undertake certain
actions and the responsibility to provide an account for these actions
(Gray et al., 1996: 38).

2
See, www.worldici.com.

82
 Sustainability reporting is a broad term used to describe a
companys reporting on its economic, environmental and social
performance. There is no a single, universally accepted definition of
sustainability reporting (Gray et al., 2014). Sustainability reporting is
the practice of measuring, disclosing, and being accountable to
internal and external stakeholders for organizational performance
toward a goal of sustainable development (KPMG, 2008).
Sustainability reporting is driven by: a growing recognition that
sustainability related issues can materially affect a companys
performance; demands from various stakeholder groups for increased
levels of transparency and disclosure; the need for companies, and,
more generally, for the business community, to appropriately respond
to issues of sustainable development (socio environmental, socio-
economic and eco-efficiency performances).
While most corporate social and environmental accounting
research (CSEAR) defines social reporting as a process of
communicating the social, ethical and environmental consequences of
economic action of an organization to particular interest groups within
society at large, on the other hand it asserts that corporate social
reporting is neither definable or systematic activity nor it is likely
to become so in the absence of detailed regulation (Gray et al.,
1996). Stakeholder, legitimacy and political economy theories are the
three main theories that have emerged to explain and define corporate
social reporting (Gray et al., 1996).
The term Social & Environmental Accounting and Reporting
(SEAR or SER) is widely used to refer to corporate accounting and
self-reporting processes through which quantitative and qualitative
information about social and environmental effects are accounted and
disclosed (Gray et al., 1995a,b; 1996; Hibbit, 2004; Contrafatto,
2011). Different media (annual reports, stand-alone social and
environmental accounts, websites, etc) are used to communicate this
information to a broader group of stakeholders. SEAR has attracted
the attention of academic accounting research since the mid-1970s
(Gray, 2002; Rusconi, 2006). Originally this attention represented an
initial interest for what appeared to be a new topic worthy of
consideration. By the mid-1990s, social and environmental issues
gained their relevance. Arguably, since then research in the field of

83
SEAR has experienced steady growth with attention being particularly
paid to issues in the field of external reporting (Deegan, 2002). In
addition, there has been a significant increase in the number of
academic researchers embracing the issues, in the level of
consideration being given by governmental institutions (i.e. the EU
and UN) and professional (accounting) bodies, and, indeed, in the
amount of organizations producing different kinds of social and
environmental reports (Contrafatto, 2011) . According to Bebbington
et al. (2009), SEAR, has moved from a fringe activity pioneered by
socially conscious but non-mainstream companies into a credible and
serious practice embraced by a number of major corporations
(Bebbington et al., 2009: 51). In the last decade SEAR literature has
been constantly enriched with the contributions provided by more
systematic and extensive empirical research projects which have been
conducted, via several methodological and theoretical frameworks, to
explore social and environmental accounting and reporting practices
in different sectors and/or industries across the world (Mathews 1997;
Bebbington, 2001; Gray, 2002; Thomson, 2007).
Various legislative initiatives have been undertaken in the last
years by the European Union (ie. the EU Modernization Directive
2003/51/EC). In particular, the European Directive on "Non-Financial
Information", recently issued (October, 22nd, 2014 - published in
Italian Official Journal on November, 15th 2014), will have to be
transposed into the Italian Law by December 2016, with application
from the 2016 annual reports (i.e. 2017), but general request for
comparative data implies that also 2015 annual report will have to
show this data. After 4 years the EC will run a review of the Directive
effects (probably linked also to the IR Framework) The Directive,
leaving open the reference framework for using KPIs represent some
aspects of social and environmental impact of business, asks the
European Commission over two years to provide guidanceto the
fields on KPIs and information to be included in the Report
management of the company
Furthermore, a few regulatory and legislative requirements,
although unsystematic, have recently been passed in several EU
countries in order to regulate organizations activities for accounting
and reporting social and environmental impacts (KPMG International

84
Survey of Corporate Social Responsibility Reporting, 2005). Of the
various empirical studies carried out, a research done in the year 2008
(Fossati et al., 2008) on a sample of 349 listed Italian companies
revealed the classification of public documents to be very varied: the
following appear in descending order: Corporate Responsibility
Report, Sustainable Development Report, Corporate Social
Responsibility Report, other classifications (Activity and Sustainable
Development, Sustainable Value Report, Environmental and social
Report) and Sustainability Report.
A proliferation of competing sustainability-related frameworks,
principles, codes and management systems has arisen. Beyond the
GRI guidelines, the list includes: the AccountAbility (AA) 1000 for
managing and reporting and reporting sustainability performance;
Social Accountability (SA) 8000 for managing labor practices;
International Standards Organization (ISO) 26000 on sustainability
management (Castka, & Balzarova, 2008). Among the regulatory
principles we can mention: the SECs MD&A disclosure rules; the
UKs Enhanced Business Review Requirements; the EUs
Modernization Directive 2003 to include nonfinancial key
performances indicators in the annual reports; and the Australias
National Greenhouse and Energy Reporting requirements3.
The body of SEAR literature can be classified (Contrafatto, 2011)
into four classes: 1) those studies which have examined mainly
motives and drivers for the initiation and/or sustainment of SER
(Buhr, 2002; ODwyer, 2002; Spence, 2007; Belal & Owen, 2007;
Bebbington et al., 2009; Farneti & Guthrie, 2009); 2) research
exploring the contextual and internal factors (including managerial
attitudes) which influence the nature and extent of social &
environmental reporting and might contribute or limit change in
organizations (Adams, 1999; 2002; Adams & McNicholas, 2007;
Bebbington et al, 2009); 3) studies which have focused on potential
and actual possibilities of SEAR to stimulate, activate and/or produce

3
Models of reporting are attributable to due categories of standards: performance-oriented
standards (which define the minimum standards required for a social responsible approach,
i.e. OECD and Global Compact) and process-oriented standard and guidelines which
recommend procedures and elements to define the process of social reporting and
stakeholders engagement (i.e., GRI and Accountability 1000).

85
some kind of organizational change in practices, structures,
performance and/or values (Gray et al, 1995c; Larrinaga-Gonzales &
Bebbington, 2001; Larrinaga-Gonzales et al, 2001; Adams &
McNicholas, 2007; Dey, 2007; Albelda-Perez et al., 2007); and 4)
studies which have specifically analysed the managerial perceptions
and views about SEAR and related practices (Belal & Owen, 2007;
Farneti & Guthrie, 2009).
In the last years, this body of literature, has begun to question the
perspective of integrated accountability, which is briefly explained in
the following paragraph.

4. Integrated Report and Integrated Reporting

An Integrated Report (IR) is a single document that embeds both
financial and non-financial information, typically on environmental,
social and governance issues. IR represents a form of voluntary
disclosure and can be conceived as a process of communication, of
value creation over time and a periodic integrated report. An
integrated report is a concise communication on a companys:
strategy, governance, performance and prospects; on external
environment; and on the creation of value over the short, medium and
long term communication (Consultation Draft of the International -
IR- Framework, 2013: 8).
The fundamental concepts of IR focus on: 1) the various capitals
(financial, manufactured, intellectual, human, social and relationship,
and natural capital) that an organization uses and affects; 2) the
organizations business model; and 3) the creation of value over time
(IRCSA - ). Integrated Reporting Committee (IRC) of South Africa,
2014: 3).
With regards to the first concept, capitals are stores of value that,
in one form or another, become inputs to an organizations business
model. They are increased, decreased or transformed through the
activities and outputs the organization in that they are enhanced,
consumed, modified, destroyed or otherwise affected by those
activities and outputs. Specifically, financial capital includes
shareholder equity and funds raised by issuing bonds; manufactured
capital consists of assets such as equipment and public infrastructure;

86
Intellectual capital includes technology, patents, research and
development, and the organizations internal systems, procedures and
protocols; human capital includes peoples skills and experience,
while social and relationship capital consists of key stakeholder
relationships, brands and reputation, as well as community
involvement and Natural capital is related to water, land, and
minerals.
With regards to the second concept an organizations business
model is the vehicle through which it creates value. That value is
embodied in the capitals that it uses and affects. The assessment of an
organizations ability to create value in the short, medium and long
term depends on an understanding of the connectivity between its
business model and a wide range of internal and external factors.
Those factors are disclosed in an integrated report prepared in
accordance with the Framework (Consultation Draft, 2013: 6). In
recent years clarity about an organisations business model has
become a critical element in corporate reporting (Cinquini & Tenucci,
2011; EFRAG, ANC, FRC, 2013). The IR Framework states: an
organizations business model is its system of transforming inputs,
through its business activities, into outputs and outcomes that aims to
fulfill the organizations strategic purposes and create value over the
short, medium and long term (IRCSA, 2014, IR Framework, ,
paragraph 4.11 : 30):
Finally, with reference to the value creation) the IR explains how
an organization creates value over time. Particularly, the value
creation depends on: serving the interests of, and working with, all
key stakeholders (employees, customers, suppliers, business partners,
local communities, legislators, regulators, and policy-maker); the
capability to increase, decrease or transform the capitals; the
capability to manage a wide range of interactions, activities,
relationships, and causes and effects, and on the fact that the
awareness that financial returns plus effects on other capitals and
other stakeholders.
Value created manifests itself in financial returns to providers of
financial capital and also in positive or negative effects on other
capitals and other stakeholders. Traditionally, the meaning of value
has been associated with the present value of expected future cash

87
flows and value creation has been understood as the change in that
measure of value due to an organizations financial performance. IR,
instead, is based on the understanding that future cash flows and other
conceptions of value are dependent on a wider range of capitals,
interactions, activities, causes and effects, and relationships than those
directly associated with changes in financial capital. Thus IR
considers the broader context of the value created in all the Capitals.
In other terms, IR considers the Value drivers that affect an
organizations ability to create value over time: the capabilities or
variables that give an organization competitive advantage and over
which it has some degree of control. The type and combination of
each organizations value drivers are unique. They may include, for
example: financial drivers (e.g. growth in sales or market share,
pricing strategy, operational efficiency, brand equity, and the cost of
financial capital); customer relations, responses to societal
expectations and environmental concerns, innovation, and corporate
governance; and values such as integrity and trust, and teamwork.
Another relevant aspect of IReport is the interaction with other
reports and communications: The IR process is intended to be
applied continuously to all relevant reports and communications,
including analyst calls and the investor relations section of an
organizations website. In addition, it is anticipated that a stand-alone
integrated report will be prepared annually in line with the statutory
financial reporting cycle. Organizations may provide additional
reports and communications (e.g., financial statements and
sustainability reports) for compliance purposes or to satisfy the
particular information needs of a range of stakeholders. The integrated
report may include links to these other reports and communications.
The Framework does not prescribe specific indicators or measurement
methods to be used in an integrated report. The IIRC aims to
complement material developed by established reporting standard
setters and others, such as industry bodies, and does not intend to
develop duplicate content. Nonetheless, the IIRC may reference
examples of indicators and measurement methods developed by
others. (Consultation Draft, 2013: 9; IIRC, 2014).
In summary, although IR builds on developments in financial and
other reporting, an integrated report differs from other reports and

88
communications in a number of ways. In particular, it has a combined
emphasis on: conciseness, strategic focus and future orientation, the
connectivity of information, the capitals, the business model, the
ability to create value in the short, medium and long term, and
providers of financial capital as the primary audience4.
Finally, one innovative aspect to point out is the fact that IR is
guided by the Framework and by integrated thinking. Integrated
thinking is the active consideration by an organization of the
relationships between its various operating and functional units and the
capitals that the organization uses and affects. Understanding the
consequences and implications of decisions across the organizations
important capitals can be described as integrated thinking (IRCSA,
2014: 3).
Consequentl, One Report doesnt mean only one report. It simply
means that there should be one report that integrates the companys key
financial and nonfinancial information () One report has two
meanings: the first and narrow meaning is a single document, either in
paper or electronically form () The second and broader meaning is
reporting financial and non financial information (Eccles & Krzus,
2010: 10-11).
While no single, agreed-upon definition of integrated report exists
yet, below are some representative samples.
According to the Integrated Reporting Committee of South Africa
An integrated report tells the overall story of the organization. It is a
report to stakeholders on the strategy, performance and activities of the
organization in a manner that allows stakeholders to assess the ability of
the organization to create and sustain value over the short, medium, and
long term, which is based on financial social, economic and
environmental systems and on the quality of its relationships with
stakeholders5 In other words, it is a report on the value story of the
company and on the drivers of its value.
According to the International Integrated Reporting Committee
(IIRC) Integrated reporting demonstrates the linkages between an

4
See Consultation Draft, 2013, section 1.20: 9.
5
Integrated Reporting Committee (IRC) South Africa. http://www.sustainability.sa.org.;
www.saica.co.za.

89
organizations strategy, governance and financial performance and the
social, environmental and economic context within which it operates.
By reinforcing these connections, integrated reporting (IR) can help
business to take more sustainable decisions and enable investors and
other stakeholders to understand how an organization is really
performing.
Integrated reporting brings together material information about an
organization's strategy, governance, performance and prospects in a way
that reflects the commercial, social and environmental context within
which it operates. It provides a clear and concise representation of how
an organization demonstrates stewardship and how it creates and
sustains value. An integrated report should be an organization's primary
reporting vehicle.
Many companies voluntarily produce integrated reports in various
format, but few jurisdictions mandate this type of reporting (Deloitte,
2011). Among the number of initiatives developed by governmental and
nongovernmental groups the IIRC holds the promise of increased
collaboration, convergence and conformance among the emerging
frameworks of standards in the new perspective of integrating reporting.
Even if only one country has mandated comprehensive, fully
integrated reprint to date (South Africa), other countries (Denmark,
Sweden and the UK) have adopted reporting requirements to various
extents, expecting companies therefore to disclose with complete
transparency nonfinancial information. Nevertheless, despite the
lack of widespread mandatory reporting on ESG issues, the
integrated reporting movement continues to gain momentum
(Deloitte, 2011: 6). In contrast to intangible assets and KPIs separate
ESC or CSR reports are being issued by an increasing number of
companies in different countries for the period 1992-to 2008. A
2007/2008 survey by KPMG ans SustainAbiliy of more than 2,000
business people, NGO members, labor leaders, investors,
consultants, academics, provides conclusive evidence that broad
public opinion across different stakeholders strongly supports the
idea of one report: 70 percent of respondent agreed with the
statement Future sustainability reporting should be integrated with
the annual report) (Eccles, Krzus, 2010: 167). (Eccles, & Serafeim,
2011a and b; Krzus, 2011).

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 Since the 1990s instruments for measuring the companies
intangible resources have developed (Carrol & Tansey 2000; Sullivan
& Sullivan 2000; Zambon & Marzo, 2007) as well as systems which
on the one hand tend to attribute a monetary value to the intangible
resources of a company based both on financial quantitative methods
(founded on market values and time-discounting of cash flows
generated by intangible resources (Lev & Zarowin, 1997), and non
financial ones (Roos & Roos, 1997; Lev, 2001; Edvinsson, 1997;
IFAC, 1998). Such paths have however highlighted numerous
elements of convergence between sustainability and intangibles
reports as well as between financial and non financial reporting
(Molteni, 2004; Pedrini, 2007; Eccles et al., 1999; Eccles & Krzus,
2010: 10). However, there are still many difficulties tied to the lack of
homogeneity in the standards of drafting the two documents.
On the one hand, the hypothesis of a single integrated report is
supported by the existence of elements which pool together
experiences of sustainability reporting and intellectual capital
reporting. A first element is that for both the methodology envisages
the use of non financial quantitative indicators. A second element
concerns the attention divided between the management of human
capital and the management of relational capital which find space both
in sustainability and intangibles reports.
On the other hand, the complete observation of performance in
terms of tangible and intangible resources and stakeholder
management is essential to verify the strategic approach to
responsibility and sustainability and to create holistic value
(economic, social and environmental value). A system of integrated
reporting does indeed offer an informational heritage far superior to
the one provided by the separate drafting of the two reporting systems
as it allows a simultaneous monitoring of the results of stakeholder
management activities and the performance obtained by a
management of tangible and intangible resources. It also allows for an
understanding of the relationships between them.
Different empirical researches reveal that there is growing
commitment to integration between the financial and sustainability
report and that a gradual integration between sustainability report and
intellectual capital report, is already happening.

91
 The first trend is confirmed both by the use of a model for
calculating distributed and created added value (a model which
enables the use of information in the financial report to indirectly
measure the level of satisfaction of stakeholders economic
expectations and to understand the level of distributional equity on the
part of the company) and by the publication of the two documents in a
single moment using a single channel of communication.
With regards to the second trend, the process of integration
between sustainability and intangibles reporting manifests itself in the
introduction of a synthesis of results obtained relative to intangible
resources in the financial report.
The frequency with which such processes of convergence have
been observed reveals that there is a level of descriptive and strategic
integration which is gradually developing. The main factors which
favor integration are the attempt to manage the company in the
perspective of the bottom line and the willingness to respond to
corporate responsibility as a dimension of the strategy.
Firstly, attention to the triple bottom line is revealed as a factor
capable of stimulating the development of integrated reporting
systems, corroborating the hypothesis of a greater benefit in
observing performance in an extended (holistic) way through a
combined accountability of economic, financial, social,
environmental and ethnic performance, which allows for a
homogenous vision of the company and a complete judgment of
corporate competitiveness.
Secondly, companies have a greater tendency to develop a system
of integrated reporting in which the undertaking of responsibility is a
dimension of the strategy and in which the activities of stakeholders
engagement (detailed in the sustainability reports) are considered
essential in order to generate competitive advantages and to integrate
the results of intangible resources management within the
sustainability reports.
Thirdly, the tendency toward a system of integrated reporting is
stronger in companies in which responsibility is a dimension of the
strategy.
In fourth place, a feature which joins the companies committed to
the development of systems of integrated reporting, is the attempt to

92
predominantly use narrative (qualitative) indicators compared to
quantitative types.
Finally, companies are exploring integration and interpreting the
development of an integrated accountability system as an opportunity
to understand whether the practices of responsibility are contributing
to the development of intangible resources.

5. Integrated Reporting: an opportunity for SMEs?

In the vast literature on these issues (non financial reporting and
integrated reporting), very few studies have been addressed to SMEs
(small and medium-sized enterprises). Only recently, some
contributions have provides insights regarding the current trend
toward sustainability reporting, the status of global sustainability and
integrated reporting guidelines, and explored opportunities that arise
for small and midsize entities considering an integrated reporting
approach. Among these, James (2013) states that integrated reporting
may provide significant benefits for small and midsized companies
and may, in the long-run, enhance a companys economic success.
Integrated report is not only a new chance for giant entities i.e.
Microsoft, Hewlett-Packard, Volkswagen but is also relevant for
SMEs since these are the growth engine of economies all over the
world: they create jobs and new products, spur innovation, they are
essential to a competitive and effective market, they are critical for
poverty reduction and play a particularly important role in developing
countries.
The principles of integrated reporting are applicable regardless of
size. SMEs are likely to have a greater degree of integrated thinking.
Application of the principle of connectivity (intended as should be
easier. Although the integrated report is primarily aimed at investors,
it is of benefit to other stakeholders significantly affected by the
companys activities, products and services and entities/individuals
whose actions affect the entitys ability to successfully implement its
strategies.
Through integrated reporting, SMEs will enhance strategies,
understand how strategy is affected by environmental, social,
financial, and economic issues. They also enhance risk management,

93
explore new and innovative opportunities in their products, services,
processes, and markets, and improve strategic decision-making and
performances (James, 2013). Finally, through integrated reporting,
SMEs can enhance reputation among stakeholders, gain trust from
funders, lower cost of capital, become more competitive in the market
place, enhance brand value, improve customer support, and
experience better employee loyalty, as the following case
demonstrates.
These considerations and statements are partly confirmed by the
Working Group recently created within the NIBR - Italian Network
Business Reporting - that produced a first document, currently under
review, containing specific guidelines for the preparation of a SMEs
business report (NIBR, 2014). The SMEs business report should
include the following elements: the presentation of the organization;
the governance; the strategies and the business model; the
opportunities and risks; the performance; the future perspectives; and
key performance indicators (KPIs) and key risk indicators (KRIs).
The aforementioned document also states that the business
reporting is conceived as the set of activities, processes and initiatives
of technical, managerial, and organizational nature, aimed at
preparing a business report. This latter is designed to represent,
measure and illustrate all operative, strategic and financial activities of
an organization. The integrated report is therefore part of the wider
"family" of the business report.

6. The empirical study: BoxMarches Global Report

6.1 Research aim and methodology
As stated in the introduction, the aim of this empirical section is to
offer lines of reflection on the benefits (greater clarity about
relationships and commitments, deeper engagement with all
stakeholders, better decisions with economic, social and
environmental merit, lower reputational risks) deriving from the
adoption of integrated report and their relationship with specific
attributes of SMEs.
The study was developed using a qualitative approach and a
methodology based on a single case-study (which constitutes an

94
explorative and exemplary case) (Yin, 1994; Eisenhardt, 1989;
Eisenhardt & Graebner, 2007). The fieldwork approach, as
suggested in the SEAR literature (Adams, 2002) facilitates the
involvement of the researchers in the actual activities of the
companies with a view to studying the processes and the
organizational practices of SEAR. This methodology consists of
identifying the internal factors (organizational structures, internal
micro-processes, attitudes, points of view and perceptions) that,
together with the corporate characteristics (size, sector, age of the
business, etc.) and the general contextual factors (economic,
political, cultural, etc.), explain the complexity of the
social/sustainability/environmental/intellectual report statements
and, in addition to influencing the nature and the extent of the
corporate SEAR and of the social engagement profile, impact the
system of governance. Furthermore, the case method constitutes a
valuable instrument for utilizing the results to attain cognitive aims
and normative substance, indicating best practices and suggesting
criteria for further action (Craig, 2003).
With specific regard to the methodologies and approaches used in
the SEAR field, we adopted an action research approach (Adams &
Mc Nicholas, 2007) to undertake the empirical study in order to
investigate, among others, factors that might impact (hinder or inhibit)
the development of integrated report and its potential to produce
effects on the organizational context and to act as a catalyst for change
in organizations performances and practices. The action research
approach uses
interviews as a primary means to gather data and information. In
addition, other research methods (such as observations, visits and
meeting participations, documents analysis and questionnaires) are
largely adopted to supplement and enrich the information and data
gathered through interviews.
With reference to the research questions at the base of this study,
BoxMarche was selected for its excellence relative to the CSR and
sustainability orientation which is characterized by the following
attributes: the presence of a philosophy of governance and of socially
oriented management shared by the leaders of the firm
(entrepreneurial family, managing director), diffuse throughout the

95
entire organization and reflected in its mission and its governance; the
adoption of processes of social and environmental certification and
strategies of CSR and sustainability; the communication of CSR and
development of systems of accountability (regular publication of
social reports and of integrated reports); recognitions/awards received
for their robust activities of social responsibility and the sensibility to
the diffusion of best practices of CSR in the local and extra-local
context in which they are found.
The research was developed across a multi-year period, beginning
in 2009 and continuing today and was based on information acquired
during several in-depth semi-structured interviews with entrepreneurs,
managers, and different stakeholders, on direct observation during
visits to company; and on the analysis of documentary sources (social
reports, global reports, statement of values, as well as information
posted on the companys internet sites). The scope of this triangulated
approach was to make use of different advantages and strengths
offered by the various method of data collection. Direct observations
in the firms offered the possibility of comparing the results of the
interviews with the reality inside the business. In addition, a
participant observation approach has been used, involving the
entrepreneur, the managers and their collaborators in laboratories,
conferences and seminars that set the stage for the informational and
interview phases.

6.2 BoxMarches profile

BoxMarche Spa is a company based in the small town of Corinaldo
in the Marches region (central Italy), and is a typical example of the
Italian socio-economic system based on SMEs and a historical
craftsmen tradition (Fu, 1988). It is a regional leader in the design
and execution of packaging for the foodservice housewares, small
electronics, and cosmetic-pharmaceutical sectors. The firm was set up
in 1969 through the initiative of the Baldassarri family, predominantly
given to agriculture; people who came from the land, from solid
principles workers of few words: Ones word is his bond is a
recurrent expression in the farmers world, where behaving with
integrity and virtue means adhering to principles of goodness and
responsibility.

96
 In 40 years of history the company has grown and by the end of the
year 2011 it had reached a total turnover of over 10 million euro
providing work to 50 employees. During its history BoxMarche has
always followed the principles that competition is that of ideas and
of relationships, basing on innovations in technology, processes,
products and relationships.
The mission of Boxmarche is to be an excellent company, of solid
principles (Table 1), which works to enrich all of its stakeholders:
customers, providers, employees, partners, the territory and the outside
community.

Table 1 BoxMarches values and culture

1. Foster collaboration with clients offering high-value products and services through innovation
and excellence
2. Partnerships
3. Centrality of the firm (which is considered an instrument to overcome individual interests and
conflicts
4. Organization improvement (continuous research of best practices, flexibility and skills
development)
5. Respect for the Individual (valuing the dignity of employees, encouraging personal growth
through continual training, believing in the capacity of others and respect for their work)
6. Environment and territory (become a reference point for all businesses in the region with
respect to the environment, committing itself to sustainable development and going beyond the
standards, instilling a relationship of trust and transparency concerning the firms activities
among the local community and public institutions)
6. Quality (operating with excellence)
8. Value of capital (optimizing economic-financial results and raise the principle value of the firm:
human, relational and structural capital)
9. Constant improvement (a culture of constant improvement throughout all levels and all contexts
of the organization).

Source: BoxMarche Global Report 2011: 25.

BoxMarche distinguishes itself for its holistic approach to CSR

and sustainability and is characterized by the following attributes (Del
Baldo, 2010; 2012):
presence of a framework of ethically connoted values, and values
shared by the leaders of the firm (entrepreneurial proprietor/family,
managing director) and diffuse throughout the organization;
adoption of strategies of social responsibility with an adhesion to
CSR codes;

97
 adoption of processes of social and environmental certification;
regular publication of social, environmental and intangible
resource reports and, more recently, of integrated report;
fulfillment of ample and significant initiatives of social
responsibility both on the local, national and international level;
recognitions/awards received for different CSR and sustainability-
oriented projects; sensibility to the diffusion of best practices of
CSR in the local and extra-local context in which they are found.
Social responsibility and sustainability orientation are not
considered merely an opportunity for raising the firms visibility and
reputation, but above all as drivers which actively contribute to the
construction of a better socio-economic environment, with a rich return
on its tangible (economic and financial performance) and intangible
profile. BoxMarche exemplifies a strategic and structured approach to
CSR and sustainability and align business values, purpose and strategy
with the social and economic needs of stakeholders, while embedding
responsible and ethical business policies and practices throughout the
company. Responsibility and sustainability are experienced as a way
of doing business. Key attributes at the basis of social commitment &
engagement of BoxMarche are the following: a strong system of shared
values; an orientation toward CSR and sustainability strongly desired
by the owner-management team, whose own genuine values and
behaviors influence such orientation; the presence of a vision and a
system of values constantly reinforced through the companys culture
and continuously communicated within/beyond the organization,
through relations with stakeholders; a strong embeddedness to a the
socio-economic environment, historically characterized by a solid rural
tradition, typical expression of the Marchegian culture; a decision-
making process based on collaboration, sharing and transparency; a
relational approach centered on trust; the adoption of accountability
tools aimed at communicating, sharing and reporting its socially
oriented commitment; the cohesion to stakeholders, appreciated as a
source of mobilizing resources; the affiliation in local, national,
international networks aimed at promoting CSR and sustainability
standards and actions. Consequently, the fronts of engagement and the
forms of communication of CSR and sustainability are systematic and

98
creative and manifest themselves in a variety of forms. The following
provides a brief picture of several projects produced by BoxMarche
and a list of some of the awards obtained by this company for its
excellence in CSR (Table 2). With the project The passion for
improving activities for a responsible business model BoxMarche
participated in the third edition of the Sodalitas Social Award6 and in
2005 came in first place in the SME category. A second concrete
example of stakeholders engagement pertains to the Italian Prize for the
Social Responsibility of Businesses given to 24 Italian companies in
2005, and awarded to BoxMarche for being a solid reality that donates
15% of its earnings in corporate giving, and pays close attention to the
environment, research and development, and society. The third
example relates to the Balance Oscar 2007 (Milan, Stock Exchange), in
which BoxMarche won the first prize for the category of SMEs, thanks
to the 2006 Global Report (integrated report), centered on the
innovation of the 3Ps: Products, Processes and People.

Table 2 BoxMarches certifications, awards, CSR and sustainability-oriented

tools and projects
1996 ISO Certification of Quality 9002
1999 Participation in the Quality Awards Italy
2001 ISO Certification of Quality 9001
2001 Honorable mention, regional Quality Awards Italy
2001 Certification of the Production Site according to ISO norm 14000
environmental certification of the production site
2002 ISO Certification 9001: Vision 2000
2003 Special Mention, environmentally-friendly planning Ecoprize
2003 Quality Award Italy for SMEs
2003/2004 OHSAS Certification 18000 management system of health and security in the
workplace
Certification SA8000:2001 management system for socially responsible
management
2004 Publication of the Social Balance award, 2003
2005 Winner, Sodalitas Social Award for the category SMEs
2005 CSR in Pole Position - Boxmarche is among the 30 Italian firms selected by the
Italian Ministry of Work and Social Policies, and by Confindustria to be honored
for best practices of social responsibility-CSR
2005 National Award for Social Responsibility in Business
2005 Recognition of benevolence, City of Corinaldo
2006 Official Selection at the II European MarketPlace on CSR- Skills and Competence

6
The Sodalitas Social Award honors businesses that operate in Italy who are distinguished
for implementing projects with high value and social content.

99
 Building; it won the title of best practice: People Care-Skills Passport Project.
2006 Publication of the first Global Report
2006 Nomination, Oscar di Bilancio 2006 (Milan, FERPI)
2006 Registration according to Regulation CE 761/01 (EMAS)
2006 Adoption of the European Roadmap on CSR
2006 Confindustria Awards for Excellence, Business champion of the valorization of
the territory
2006 Multi-stakeholder Panel (multi-stakeholder counterpart for the Italian CSR
Forum)
2006 Forum Intangible Capital: a strategic factor for innovative businesses
2007 Winner, Oscar di Bilancio 2007 in the category of Small and Medium-size firms
(Milan Stock Exchange, FERPI)
2007 International Award ECMA, Pro Carton Award, Confectionery category
2007 Work Value Prize for the Marches Region
2008 Award ECMA PRO CARTON - Shelf Ready & Display Packaging - All Other Non-
Food
2010 Award ECMA PRO CARTON - Most Innovative Packaging

Source: our elaboration of BoxMarche global report, 2011.

BoxMarches governance is characterized by the presence of an

open family-owned economic subject: shareholders and managers are
not formed exclusively by members of the entrepreneurial family, but
also by external subjects not tied to kinship bonds. The words of
BoxMarches Managing Director and General Manager (Tonino
Dominici) reveal his high esteem for the values inherited from the
founding familys culture and tradition. Entrepreneurial and
managerial leadership is based on transparency, sharing of strategies
and responsibility, and dialogue.
The Global Report (Identity and Sustainability section) dedicates
ample space to describe the composition of the shareholders, the roles
of the partners in governing the company and caring for the minority,
and to the activities of investor relations. We provide constant
updates on the management of the company to our shareholders, who
are an important part of our company; we have therefore provided, in
addition to the annual balance sheet and budget as required by law,
the illustration and audit of the triennial plans and budgets, and
monthly meetings with our associates to elaborate strategies and
communicate how the company is going (T. Dominici, May 11,
2012). The diverse categories of stakeholders enjoy numerous
collective initiatives, from the annual presentation of the social
balance/global report to the bimonthly report, to the creation of virtual
communities (such as Internet forums).

100
 6.3 BoxMarches Global Report
The idea of social report (adopted for the first time in 2003) was
born from the need to show the population the values of a business and
the necessity of transparency for the stakeholders (T. Dominici,
Managing Director). From the social report, BoxMarche was added to
the third edition of the global report in 2008, which represents an
example of integrated report both published and distributed among
stakeholders and available on the Internet company site. This report
comprises in a unique document the asset and liability statement and
the income statement (financial reporting), the sustainability and
environmental reports and - since 2006 the analysis of intellectual
capital (the reporting statement for firms intangibles assets
intellectual capital report). BoxMarches global report represents an
instrument of accountability or, rather, an integrated system of CSR and
sustainability, which instates (and, at the same time, is the fruit of) an
authentic dialogue and engagement process with stakeholders born
from the authentic desire to make business activities transparent,
responsible and sustainable. Such a document is a constitutive element
of the business philosophy and is part of a system of management called
quality-security-environment-social responsibility. The global report of
BoxMarche is a concrete sign of a process of involvement and
communication, of stakeholder relationships, engagement and
reporting.

We maintain that the Global Report is the most adept instrument

for spreading the value of maintaining our values, that which drives
us to move forward with enthusiasm and love toward all that we do.
Its a form of communication that unites numbers, images and words,
and which allows us to share with every stakeholder our particular
reality. (S. Pierfederici, Letter from the President, Global Report
2007).

The global report is an expression of a precise communicative

strategy. It places itself alongside other instruments of communication
and dialogue adopted by the company, based both on direct and
personal relations (multi-stakeholders forums at local and national
level, conventions, open houses) and on indirect relations (websites,

101
corporate newsletters, companys magazine, sectors trade
magazines). It represents the synthesis of BoxMarches value creation
process in which the economic, social, environmental and ethical
performance of the company is presented in an integrated way.
BoxMarches integrated report is a document which emits strong
entrepreneurial passions, a sense of belonging and a sincere desire for
self-representation. A notable aspect is the excellence achieved in the
communication of BoxMarches strategy and in actively incorporating
interlocutors, sustained by the desire to provide tangible evidence of
best practices and to spread out the ethical matrices of the firm into its
surrounding territory through multiple channels. With the global
report BoxMarche, although small, was able to insert itself fully into
the national context among businesses who better obtain and
communicate their own socio-economic and environmental
performances.

We here at BoxMarche like to communicate. We see relationships

everywhere, everywhere theres the possibility to pick out, from
another part of the line, someone who shares our respect and our
recognition (T. Dominici, Letter from the Managing Director, Global
Report 2007).

Our Global Report is not only a report of numbers, but also of

values. It permits our stakeholders to have a dependable idea of how
the business fulfills that sort of delegation that civil society has
conferred to produce a better world for all goods, services and human
relationships. (...) First CSR, which is a fact of faith, then good
governance, which is its outcome (T. Dominici, 6 July, 2012).

The national and international standards utilized as referenced are

represented by the GBS (2001) and by the GRI guidelines, as well as
those promoted by the project Q-RES for the quality of the ethical-
social responsibility of the firm7 and by the Italian Ministrys Project

7
The Q-RES Project was created by the Centre for Ethics, Law & Economics (CELE) in
collaboration with associations, businesses and non-profit organizations; http://nt-
notes.liuc.it/ricerca/cele.nsf.

102
CSR-SC (2003). A panel at a multi-stakeholder forum was also held
to compare the results they achieved and the proposals for improving.
BoxMarches CSR-SC framework thus rests upon the adoption of 98
qualitative-quantitative indicators, all developed in a three-year trend
along four principal directives: structural capital, human capital,
relational capital, clients and market.
The process of accounting, reporting and accountability is looked
after by an internal coordinator and by a working team formed by the
managers of the principal functions and areas of the company, which
operates in close collaboration with external consultants who come
from the professional and academic world. Currently they are in the
midst of diverse initiatives aimed at improvement: forecasting further
indicators, introducing the detailed budget, analyzing the competitors
assessments (sector benchmarking) and enhancing the solvency of
clients and of providers. Another element of innovation is the section
Value Chain introduced in the 2007 version of the global report,
which, in an additional section (called Together with us) gives
visibility to the providers of BoxMarche and offers them the
possibility to talk about their experiences with the firm and the
outcomes.
As previously mentioned, BoxMarches integrated report includes
the economic and financial report, the social and environmental report
and the intellectual capital report. It is structured in five macro-
sections, which comply with the suggestions of external consultants,
the relationship with the board of statuary auditors, and the minute of
the shareholders meeting.
The first section describes the companys identity and presents
synthesized data concerning the principle results achieved
(highlights). It contains references to the firms vision and its values,
to its mission, to governance, and to business strategies. Letters from
the Managing Director and the President of the Board are also
featured. The second section contains the asset and liability statement,
the profit and loss account, and a supplementary note. The third
outlines the administrative relations (directors reports/annual
statement complete with financial accounting, cost analysis,
research and development initiatives) included in the sections of
sustainability and analysis of intellectual capital and intangible assets.

103
 The fourth section (sustainability section) is articulated in the
following parts: the creation and distribution of added value, the
social relations/social report (distinguished through the categories of:
personnel, shareholders, financial community, clients, competitors,
providers, financial partners, the State, local organizations and Public
Administration, community and territory, environment); research and
development, events and awards, and proposals for improvement.
The analysis of intellectual capital (fifth section) is based on a
descriptive approach and on the use of qualitative and quantitative
indicators. The main references are represented by models such as the
balanced-scorecard (Kaplan & Norton, 1992), the intangible asset
monitor (Sveiby, 1997a) and the value chain scoreboard (Lev, 2000).
BoxMarche groups together the indicators into homogenous classes,
referring to three categories:
- structural capital: the analysis proposes to translate into indicators
the drivers of values of the firm (Fig. 1): tension to innovation,
research for new solutions, problem solving capacity, efficacy and
efficiency of production processes, production flexibility, quality and
efficacy of the work, focus on long-term growth over short-term
profit, attention to security.
- human capital: the analysis integrates information about the staff
supplied in
the social report section and gives prominence to collaborators
competencies and to the companys commitment to spreading and
developing competences and know-how. Human capital is measured
through indices of potential and result. These reflect both the
companys point of view and that of the collaborators (indices of
satisfaction and of leadership quality with reference to managers and
the managing director) obtained by the results of surveys completed in
anonimity.
-relational capital: the analysis focuses attention on the capacity of
the firm to develop relationships with external interlocutors, with
particular attention to clients, for assessing the coherence of the firm
with respect to its vision statement and to its business strategy, and to
minimize the risk of informational redundancy. The information
integrates the data contained in the client section of the social report.
The analysis is expressed through qualitative and quantitative

104
indicators relative to the quality of relations (i.e. customer satisfation,
customer loyalty, the percentage of turnover coming from new clients
and degree of disagreement with clients, etc.).

Fig. 1 BoxMarches model for the creation of shared value BoxMarches

business model

BoxMarches value driver

Reltaional
Structural
Capital

Capital
Human
Capital
Financial
Capital
Intellectual Capital

Vision and business strategy

6.4 Discussion
The case provides many causes for reflection, and two aspects in
particular should be considered with references to the research
questions posited at the base of the study.
First, BoxMarche is without a shadow of a doubt a proactive and
transparent business, which denotes an evolved socio-economic-
environmental commitment and which for its origin has tried to raise
awareness of the context in which it is found and to convert to CSR
and sustainability orientation all whom it meets through multiple
relationships that the course of activity brings with it.
The second aspect pertains to the efficacy of how the company
communicates its stakeholder commitment, its orientation toward
socially responsible management and the development of the
intangible capital or, in other words, its value. Specifically, under the
profile of communicating CSR, one can underscore the discovery of
communication as an element that enriches the fundamental ethical
energy. BoxMarches form of communication aims to be thick with
coherent messages based on values, on human processes, on
dynamism. BoxMarches integrated report signifies its capacity for
disclosure, which is rare - if not unique - among small businesses, and
notable for being based on innovative reporting that pivots on the

105
integration of informative qualitative and quantitative content that
includes sustainability assessments and intangible assets. BoxMarche
believe that an ongoing dialogue, supported through the integrated
reporting, rather than an end-of-year conversation only based on the
presentation of the financial reporting, better addresses its
stakeholders needs and the way to give voice to its own way of
doing business. The result is greater transparency about the
companys performance and how it has been achieved, and greater
internal and external social cohesion.
The origins of the motivations which supported the choice to
produce the integrated report (shifting from the social balance,
adopted in the early years) is mainly internal. The entrepreneurs,
sharing this choice with managers and the responsible of different
company functions promoted this choice and in a second step they
shared the same choice with external stakeholders (customers,
providers, banks, investors, and community). We can assert that the
choice is authentic, and not attributable to a mimetic or normative
processes (due to the imitation of competitors or to legal obligations),
nor to a fashion (Di Maggio & Powell, 1991). The values that have
guided the choice are mainly of two kinds: transparency and the
willingness to communicate in a consistent and complete way the
economic, financial, ethical, social and environmental value produced
through the management of corporate activities.
In BoxMarche the choice of integrated reporting is developed
through a shared path and a systematic process which has marked the
period of adopting quality environmental and social certifications as
well as the adoption of the social report in 2003 and more recently the
integrated report in 2006 and continues today. The administration and
finance departments were directly involved and supported by external
consultants but all the operational and strategic choices were shared
and were the result of informative meetings among collaborators.
Since its inception, the process of improvement has been gradual.
Improvements in the forms and instruments of accountability (for
example, the enrichment of indicators in the intangible capital section)
are the result of a process of review developed internally and
externally (comparing itself to the choices made in other companies
and between the managers of differing corporate roles).

106
 The benefits generated by the choice have been numerous (and
include the awards obtained for the quality of the integrated reporting)
and in particular have affected the reinforcement of corporate culture
and the process of stakeholder engagement/stakeholders dialogue.
The criticisms which have emerged have not been signaled out by
the managers interviewed, nor by corporate operators or stakeholders
interviewed (clients, banks, suppliers), with the exception of some
comments related to informational abundance (the report is over 200
pages long and enriched by significant graphs and figures).
Finally, as it has emerged from the analysis and been revealed from
the interviews, integrated reporting is not seen as an end, but an
important driver to increase the reputation and credibility of the
company, the multiple relations with stakeholders and to improve the
corporate climate. Undoubtedly this represents for BoxMarche, by
nature tends to excel, an intermediary step, a path from which, as the
Managing Director asserts we will not turn back because this is our
faith.

7. Conclusion
The aim of the analysis, both on the empirical and theoretical
perspective, was to contribute to formulate the hypothesis (which has
to be verified in the future of the research, through in-deep qualitative
study as well as through a quantitative-based study focused on the
diffusion of the integrated report in SMEs) that integrated reporting
represent a real and effective choice not only for large and public
companies, where is mainly demanded by investors, but also for
SMEs where it appears as an authentic choice, supported by the
willingness of entrepreneurs to ask and give account for their activity.
As the analysis of the case demonstrates, the integrated reporting
can be appreciated as a path of transparency and synthesis of a
tendency toward responsibility and holistic development. This path
flows naturally into the homogenous representation of corporate
performances when (and if) it is the result of an authentic choice and
therefore not of green washing or window dressing.
Under the deductive profile, the study reveals that the question of
integrated reporting arises, especially for large companies. The

107
tendency toward a conceptual company, that is to say a knowledge-
based company, speeds up the coming age of integrated reporting.
This kind of reporting represents the most suitable tool, compared to
other financial and non financial reports, to explain in a transparent
and complete way the companys capacity to create value over time
and allow stakeholders to have a whole vision which explains the
value creation history of the company. However, this is not only
true and valuable for large companies. As some recently contributions
have revealed, and in line with the reflections which have emerged in
this explorative study, the integrated reporting is also an effective
choice for SMEs and a possible journey which can be accomplished
through an evolving process and different phases (planning the
integrated reporting process; engaging with stakeholders, identifying
the report content). Thereby creating a dialogue between the various
kinds of reporting since, as Eccles and Krzus state (2010), sustainable
strategies require integrated reporting.

108
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 A DATA MINING APPROACH TO BUSINESS
MODELLING

Nicola Castellano1, Roberto Del Gobbo

Department of Economics and Law University of Macerata
Macerata - Italy

ABSTRACT
According to the extant literature, business models may be considered as
cognitive devices, and their adoption requires the development of a deep level of
knowledge about customers, suppliers and competitors. Recent experimental studies
show that the adoption of data-mining tools create a positive interaction with
business models, empowering the strategic performance capabilities that drives the
achievement of competitive advantage.
The present paper aims to improve the studies about the interaction between
data-mining tools and business model design, by discussing whether the adoption of
a data-mining in a real context may be enabled or hindered by organizational
heterogeneity related to factors such as the level of authority, level of experience,
managerial and technical skills, educational background, and so forth.
The tool adopted in the case study, the Structured Neural Network, is
particularly suitable in support of strategic management, since it stimulates the
convergence of personal knowledge and beliefs towards the exploitation of the key
concepts and the cause-and-effect relations needed for the design of the business
model. Furthermore it provide a fact-based test for its robustness. The results
provide both scientific and practical implications.

Keywords: Business Models; Data mining; Structured neural network; Decision

making support; Knowledge discovery

1. Introduction
Extant studies about business models does not express consensus
about what a business model is, what it is for, and about how it is

1
Corresponding author nicola.castellano@unimc.it
composed probably due to extreme difficulties in creating a general
taxonomy which might be adaptable to every kind of environments.
However some concepts seem to be generalizable:
- Business models should explicit the value proposition that a
company aims to address to its customers;
- The exploitation of business models requires a learning and
cognitive ability in order to detect signals that reveal the opportunity
to adapt the existing models to changing environments (for
established companies) or to create new models (for start-up
companies).
The adoption of business models assumes that strategy is
discovery driven rather than planning oriented. Earlier approaches
to strategy assumed that managers should have been focusing on
discovering the company core competencies and consequently in
searching the most profitable market opportunities. Conversely the
business model approach assumes that managers should be constantly
monitoring the changes in customers need and values, in order to
properly adapt the company value proposition (Gunther McGrath
2010).
The learning activity about customer needs and values can be
intended as a knowledge discovery and, considering the massive
amount of data often available, can be facilitated by the use of data-
mining applications. Heinrichs and Lim (2003) show that the adoption
of data-mining tools creates a positive interaction with business
models, improving the managers speed to focus on the most
significant issues (opportunities and threats) to be managed in order to
create or sustain the competitive advantage. Basing on an
experimental study, the authors measure the interactions between
data-mining tools and business models. The experimental study
implicitly assumes that all the respondents play the same role in a
virtual company environment, holding similar skills and
competencies.
The present paper aims to extend the research by describing the
adoption of a data mining tool in support of the business model design
in a real context, characterized by extreme organizational differences
concerning the actors involved, that can enable or hinder the effective
adoption of the information tool. The differences may relate to the
level of authority, skills, level of experience, confidence with
numbers, educational background.
The results obtained provide slight evidence that the adoption of a
data mining tool a Structured Neural Network, in particular may be
accepted and may provide effective support to decision making, even
when organizational heterogeneity occurs. The paper also provide
evidence that the successful adoption is conditioned by the organizational
attitude to learn and discuss the managers personal beliefs.
The paper may also have practical implications since it provides an
exemplification about how the results emerging from the application
of a data-mining tool may support the knowledge generation process
and ease the design of a business model.
The remainder of the paper is structured as follows: in section 2
and 3 a review of the literature about knowledge generation in support
of business models design and data mining is summarized. The case-
study research is described in section 4, while in section 5 the main
findings are discussed. Final considerations and further research
directions are described in the last section.

2. Knowledge generation and business modelling

The business model can be considered as a general concept
adopted by researchers and academics to explain extremely different
phenomena. In the last 25 years the studies about business models
have been developed massively but focusing on specific streams of
research such as (Zott et al. 2011): e-business models; mechanisms or
process through which value is created and/or captured; how
technology innovation may impact on value creation. A lack of
studies on a common and general ground hinder the generation of a
clear consensus about the meaning of business models, even if some
general issues may be identified.
Business models adopts an holistic and systemic perspective, based
on activities, intended to describe dynamics, components and linkages
through which value is created and captured (Zott et al. 2011).
The business models can play either the role of scale models and
role models (Baden-Fuller and Morgan 2010). As scale models they
describe a business in a simplified version: they allow to appraise the

123
main differences between companies, but they cant represent every
particular detail. The scale models help researchers to describe kinds
of things (or behaviors); to classify; and to create taxonomies and
typologies, empirically and theoretically grounded.
As example we cite the model proposed by Baden-Fuller and
Haefliger (2013) which consists on a theoretically-driven taxonomy
based on value creation and value capture, which employs four
dimensions: customer identification, customer engagement, value
delivery and monetization. The customer dimension takes into
consideration the categories of users that the company value
proposition is directed to, whereas in the customer engagement
dimension the customer needs are addressed and the basis for the
definition of a suitable value proposition are set. The value delivery
and monetization exploit how the customer needs will be satisfied and
the revenues expected.
Similarly, Ostenwalder and Pigneur (2010) proposes a more
detailed taxonomy, the Canvas Business Model, composed by nine
building blocks: customer segments, value propositions, channels,
customer relationships, revenue streams, key resources, key activities,
key partnerships, cost structure.
The two examples show that in essential a Business Plan, describes
how the company intend to meet specific customer needs, how the
customers will be disposed to reward the value received, how the
company is expecting to generate an adequate level of profit (Teece,
2010).
As role models, the business models work like model organisms
(adopted in biology), and help researchers and managers to explain
and understand how and why a particular business is successful and
profitable. In this case, single companies business models are studied
and generalized into exemplar case, representative of ideal types
that may be imitated by other companies that practice (or attempt to
practice) a similar business model.
In a third perspective, the business models may be considered as
recipes, to show how to organize and integrate together strategic
elements (customers, markets, resources, capabilities, products,
technologies, and so forth) according to rules that are expected to
produce successful results.

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 Despite the definitions or the taxonomies adopted, a common issue in
literature is that the design of a business model requires creativity as first,
but as well a good level of knowledge about customers, suppliers and
competitors. The business models may be considered as cognitive
devices (Baden-Fuller and Haefliger, 2013): middle-ground descriptors
that categorize the specific attributes of individual companies, referring
to the general management theories (Porac et al. 2011).
Business models promote an outside-in, rather than an inside-out
focus (Gunter Mc Grath, 2010) meaning that the managers should be
constantly engaged in discovering and adapting to the changing
customer needs and values. Internal core competencies and key
resources should be developed accordingly.
In particular for what concern customers, the questions that need to
be answered are the following (Teece 2010): what is the deep truth
about what customers really value? How will the company satisfy their
needs? What might the customer pay for the value received?
Reasonably, non-accurate assumptions produce uncertainty and
risky future outcomes. Managers make frequently false assumptions in
those areas where they believe to hold a deeper understanding and
knowledge, so they dont perceive the necessity to test their thinking
(Bertels et al., 2015). The only possible way to reduce the uncertainty
risk is to have a clear and explicit organizational learning, able to
capture the essential changes in the environment. Furthermore it is
necessary that managers are inclined to learn, to discuss and to revise
their personal beliefs and knowledge about the company and its
competitive environment.
If the customer needs are clearly exploited, the managers will have
the possibility to formulate a suitable value proposition (Euchner and
Ganguly, 2014). Furthermore, the knowledge about what the customers
are willing to pay for, is essential in order to connect the sale prices
with the items perceived by customers as more valuable, thus
amplifying the managers expectations about monetization (Chatterjee,
2013).
Assuming that lot of knowledge about these players is implicit, the
managers involved in the business model design may face difficulties in
fully rationalize and articulate it, then a discovery approach based on
experimentation and learning may be needed (Teece 2010).

125
 Experimental work may help managers to learn as much as possible
at the lowest possible cost, since many of the market constrains that
could impact on the success of the company initiative are not known
when the business model is being designed (Gunter Mc Grath, 2010).
The learning activity is referred to the generation of knowledge
about the customer needs and value-perceptions. Real-world data are
needed, to be collected sourcing directly from customers.
The generation of knowledge can be effectively supported by
information technology, that allow to produce information from the
massive amount of data often available in the companies information
systems and on the Internet. The adoption of information-based
knowledge management tools, may produce the following advantages
(Heinrichs and Lim, 2003):
improve the managers strategic capability, intended as the
speed needed to react to environmental changes and select appropriate
strategic and tactical business models;
develop a fact-based consensus, driving decisions without
exclusively relying on personal perceptions and past-experience.
The following information tools generally are used to support the
knowledge creation: data bases, cognitive maps, decision support
systems, data mining, intranets. In particular the adoption of data-
mining is ever increasing.
Data mining tools are based on statistical and machine learning
theories. Their first adoptions date back to the end of the 80s in support
of marketing strategic and operating tasks. The main characteristics of
data mining tools will be described in the following section of the
paper, with a particular emphasis on Structured Neural Networks which
are particularly suitable for supporting the design of effective business
models.

3. Data Mining, Neural Networks and Structured Neural

Networks
The term Data Mining refers to a wide range of applications
through which large amounts of data are selected and explored with
the purpose to discover unknown relations and regularities, or to
create explanatory models useful to make predictions and simulations.

126
 Data mining applications have been developed combining theories
related to machine learning, artificial intelligence and statistics and the
methodologies adopted can be confirmative (top-down approach) or
explorative (bottom-up approach) (Berry e Lynoff, 1997).
The top-down approach is used for hypothesis testing, to confirm
existing notions and opinions about a fact, whereas the bottom up
approach is used to generate unknown information by sieving the
available data, without any a priori assumption.
Generally, the adoption of a data mining requires the integration of
managerial and technical (statistic and informatics) skills, which are
usually held by different actors, then managerial interaction is
required to generate useful insights.
Data mining tools may be based on a wide range of methodologies,
such as: cluster detection, memory based reasoning, link analysis,
decision trees and rule induction, genetic algorithms and artificial
neural networks, just to name a few.
Neural networks are largely adopted in support of strategic
management because they have a great potential to analyze massive
amounts of data using complex algorithms (such as nonlinear
functions).
NN are inspired by biological systems and can be defined as
computational models composed by a system of units (neurons) and
linking connections (weights).
Every neuron is stimulated by data received as input and produces
a value as output. The inputs can be represented either by external
stimuli or induced by the outputs produced by preceding neurons.
In general, the adoption of a NN is suitable when the relationships
between the variables are known to be nonlinear, or not known, a
priori. Additionally a NN may be preferred over traditional parametric
statistical models, when the data do not meet the assumptions required
by the parametric model, or when significant outliers are included in
the dataset.
Usually NN applications produce results without needing any
preliminary explicit assumption about the system or the process
modeled. Therefore many users, especially those not holding
developed informatics skills, may feel skeptical about the significance
of the information produced and may perceive NN as a black box.

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 Conversely, when adopting NN in support of strategic
management, the existence of a preliminary shared knowledge about
the variables included in the model and their cause and effect
relations, may improve the level of trust and acceptance among the
managers involved.
The Structured Neural Network techniques (Lee et al. 2005) can be
considered a valid solution for predictive modeling when the
contextual and theoretical knowledge is available during the design of
the network.
Structured Neural Networks (SNN) are based on cognitive models
that summarize the managers beliefs and experiences about a
concept. They are then employed with a top-down approach, requiring
the preliminary exploitation and sharing of personal knowledge,
converted into an explicit cause and effect predictive model. The SNN
allow to test the robustness of the predictive model and provide
insights about the relevance of the expected relations between the
variables and the magnitude of the impacts produced.
In the following section we describe the adoption of a SNN in
LUBE, a company operating in the kitchen furniture industry. The
SNN has been adopted to support the initial step of the business
model design, during which the customers perceptions are explored in
order to discover the items considered as more valuable in their
relation with the company.

4. Mining through customers perceptions

The Lube is actually ranked as one of the top Italian kitchen
producers. In Italy the company gets in touch with its final users by
mean of a wide network composed by 1.500 private resellers, which
are usually multi-branded licensees.
The resellers can significantly influence the final users purchasing
decision, since they have room to promote the brands of companies
they feel more satisfied with. Their level of satisfaction, in turn, is
affected by multiple factors with consider of course the products, but
also extend to the operating processes (promotional, commercial,
logistic, administrative, and so forth) that the resellers need to manage
in strict connection with Lube.

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 For the above mentioned reasons, when exploring the customer
needs and value perceptions in order to design an effective business
model, the managers of Lube need to consider a double-layer
customer perspective, centered either on the final users and the direct
customers, the resellers. The direct customers perspective must help
the managers to discover the needs and value perceptions of the
resellers, in order to develop suitable actions and resources and
activate win-win relations that may allow shared satisfaction and
profitability and earn a durable competitive advantage.
The case study can be considered explanatory, since it is employed
to explain how a set of (qualitative) variables impact on a complex
phenomenon. The case study methodology is well suited for many
kinds of information systems and software engineering research, as
the objects of study are contemporary phenomena which are hard to
study in isolation (Runeson and Hst, 2008). Data are collected
through direct observation, adopting an action research approach,
where the researcher is directly involved in the processes under
investigation and covered the role of project coordinator.
The case study describes an attempt to adopt a data mining tool, a
structured neural network, in support of the design of a business
model. The project has been divided in three steps:
1) business model design, through knowledge exploitation and
sharing of personal beliefs;
2) data collection about customer perceptions through survey;
3) adoption of the data mining technique to test the robustness of the
business model.
The case study may extend the extant literature on business models
by providing evidence about how the qualitative factors may enable or
hinder the adoption of data mining in an organizational context
characterized by heterogeneity. Summarizing we formulate the
following research questions:
RQ1: May the adoption of data mining tools provide results perceived
as useful by managers even in a context characterized by
organizational heterogeneity?
RQ2: Are there any organizational factors enabling or hindering the
perceived usefulness of results?

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 During the first step a simplified version of the cause-and-effect
relations between customer needs, value perceptions and level of
satisfaction has been created.
In order to facilitate the discussion between the managers, the
project coordinator started by adopting the customer satisfaction
framework issued by the ECSI (European Customer Satisfaction
Index) which represents the essential factors impacting on customer
satisfaction (see Figure 1).

Figure 1. The ECSI model

The ECSI provides an economic assessment of customer

satisfaction. It derives from an adaptation of the Swedish customer
satisfaction barometer (Fornell 1992). The ECSI is based on
widespread theories and approaches in customers behaviour and it is
adaptable in a wide number of different industries.
Customer satisfaction cannot be directly measured since it is
developed through mental constructions. Assuming that a set of
determinants are expected to impact on customer satisfaction, then
measuring that variables might provide a valid proxy of customer
satisfaction.
The ECSI model assumes that customer satisfaction is affected by
four determinants: image, customer expectations, perceived quality,
perceived value. Customer satisfaction, in turn, produces effects on
loyalty and complaints.

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 The ECSI framework has been adapted to the peculiarities of Lube
through a focus group, during which the expected variables affecting
customers satisfaction and loyalty have been deployed.
The focus group was composed by the project coordinator, the
managers head of the following departments: sales, marketing,
production, finance, R&D, and by a panel of five significant
customers which are considered as strategic partners in terms of
volume of sales and robustness of the relation with Lube.
The participants have been asked to express their opinions about
the significance of the variables included in the ECSI framework and
their suitability in representing a simplified model of the relations
between Lube and its customers.
A s result of the focus group the satisfaction framework shown in
Figure 3 has been developed.

Figure 2. The (direct)-customer perspective of Lube business model

The Lube framework includes the Latent Variables (LV):

Customer Expectations (CE), Perceived Quality (PQ), Image,
Perceived Value, Satisfaction and Profitability.

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 Either CE and PQ are connected to a group of 11 Manifest
Variables (MV), representing the Technical/Functional features, Sell-
out support and Operating Relations.
The Technical/Functional features determine the efficiency of the
operating processes in which the company and the customers are
involved, and include: accuracy and on time delivery to final users,
rapidity in replacing defective or non-conforming products,
availability and ease of use of the configurator software employed by
the customers to design the kitchen-project on the base of the requests
received by the final users and to submit the order to the head quarter.
Sell-out support includes all the activities undertaken in order to
increase the likelihood for the customers to successfully sell the
kitchens produced by Lube. The following variables are considered:
richness and detail of catalogues, merchandising initiatives organized
by the headquarter (products promotions, advertising material, and so
forth), specific training initiatives directed toward the customers.
Operating relations relate to the human side of the relation between
Lube and its customers and include: courtesy, promptness of the
headquarter staff in providing answers and solutions to the customers
requests and problems, technical assistance and so forth.
The CE expresses how customers consider relevant the three
drivers, whereas PQ measures the perceptions of customers about how
Lube produce quality and satisfaction when managing issues relating
to the three drivers.
The Perceived Value is connected to the Quality/Price ratio and to
a qualitative assessment about the value of products and services
provided by Lube in comparison with those of the main competitors.
A total of 34 manifest variables was considered in the framework.
In the second step, data were collected through a survey realized by
sending questionnaires to a statistic-significant sample of customers.
The respondents, were asked to evaluate every manifest variable by
mean of a 10 levels qualitative scale.
A Structured Neural Network (SNN) has been employed to
calculate the significance of the stimuli produced by the neurons
included in the framework (the arrows in figure 2).
As described above, the SNN are particularly meaningful in this
context, since they allow to model non-linear relations between

132
variables in absence of any a priori information about their shape and
nature, as in the case of customer satisfaction and its determinants.
Moreover, since the customer perspective of Lube business model
has been developed as a cognitive representation of the managers
knowledge, exploited and shared, the SNN may provide a test of
robustness based on data sourced directly from customers and
representing their needs and beliefs. The SNN provide, then, a fact-
based support to the managers assumptions and allows to improve
the company strategic performance capability by focusing investments
and efforts on those variables which are more sensitive in improving
satisfaction and profitability.
The inclusion of profitability in the network allows to quantify the
importance of a latent variable in creating monetary value and allows
managers to evaluate whether the costs generated by the initiatives
required to improve satisfaction might be covered by the expected
revenue streams.

Figure 3. Results produced by the Structured Neural Network

133
 Figure 3 shows the results produced by the adoption of the SNN:
the weights reflect the importance of the stimulus produced by the
input neurons on the output neurons. When the weight is negative, the
connection produces an inhibitory effect. As example, Customer
expectations produce an inhibitory effect on Perceived Value. This
means in practical terms that the customers expectations do not
produce a direct impact on Perceived value, but produce a stimulus on
Perceived Quality, that, in turn, stimulates perceived value and
satisfaction. Conversely when the weights are positive the highest the
value, the highest the magnitude of the stimulus produced on the
neuron.

5. Discussion of results and managerial implications

The results of the SNN have been discussed during a meeting
participated by the CEO, the project coordinator, and by all the
managers involved in the focus group.
The actors involved in the meeting hold extremely different
profiles for what concern past working experience and educational
background.
The CEO did not attend university, he got a high school
certificate in accounting and worked in the company since the early
seventies. He developed a really high experience in the industry and
he is one of the elder managers working in the company.
The directors of marketing and finance are both graduated in
economic disciplines and have been working in their actual role for
more than 20 years. The directors of R&D and Production also have
been working in Lube for more than 30 years covering different
positions that let them develop a high on-the-job experience and
technical skills on production planning and product development..
The sales director developed past experiences in different
companies of the same industry and once in the company he covered
different roles in the sales department, such as head of the sales-
orders processing office. None of the managers involved have
competencies and abilities related to the company management
information systems.

134
 The project coordinator is the youngest in the group, he is
graduated in economic disciplines, got a Phd in management and
developed deep mathematic, statistic and informatics skills. His
experience in the company is relatively low (compared to that of other
managers) since he is working in the company for less than 10 years.
He represent the company intelligence, since he is appointed to
produce almost all the information needed in support of strategic and
tactical decision-making.
Despite the differences between the managers, they all considered
reliable the results obtained and did not show any scepticism, neither
when the results unexpectedly did not confirm their expectations and
prior beliefs.
The results obtained are in line with the previous study of
Heinrichs and Lim, 2003, since the case study confirm that data-
mining may improve the managers strategic capability, intended as
the speed needed to react to environmental changes and to select
appropriate strategic and tactical business models, and that data-
mining may help in developing a fact-based consensus.
In addition our study provides an empiric slight evidence that the
adoption of data mining tools, may provide an effective support to
strategic planning and business model design even when the operating
managers do not hold similar managerial and technical competencies,
past experiences and educational background.
Its worth noting that CEO played a key role in determining the
general acceptance of the results by all other managers and the tool
effectiveness in supporting decision making. During the meeting he
never showed any doubt about the reliability of the results produced
by the data mining tool and always considered them as accurate and
reasonable. His mind-set positively influenced all the participants that
aligned their mental attitudes with that of the CEO. We may then
argue that the company attitude to learn, either if shared between
managers or produced by a top-down persuasion is necessary to
determine the effectiveness of the information tool.
For what concern the managerial implications, the managers agreed
that Image was the main driver of customer satisfaction since it
showed the largest positive weight in connection to the Satisfaction
output neuron.

135
 0,35
Image
Impact on the customer satisfaction
0,30

0,25

0,20 Perceived Customer

Value expectation
0,15

0,10
Perceived
0,05 Quality

0,00
7,00 7,20 7,40 7,60 7,80 8,00 8,20 8,40
Average score

Figure 4. Satisfaction matrix

In figure 4 the results obtained are classified in a strategic matrix

where the horizontal axis represents the average scores of the LVs,
whereas the vertical axis reflects their impact on the customer
satisfaction (the weights connected to the output neuron).
The variables positioned in the upper-left quadrant of the matrix
(Image) are the most critical and require immediate improvements,
since they might produce a significant impact on customer
satisfaction, but the customers on average expressed a low satisfaction
score. The company is then exposed to relevant competition risks
connected to these variables.
The upper-right quadrant shows the company strengths, i.e. the
variables that produce high impact on customer satisfaction and
deserved high ratings from customers. These variables require actions
aimed to defend and, if possible, to improve the customer perceptions.
The implication for the bottom-left quadrant, where both impact on
customer satisfaction and customers quality assessment are low,
represent the items scarcely relevant that can be ignored.
More interesting is the bottom-right quadrant (low impact, but high
perceptions). This quadrant may contain drivers of satisfaction that
customers consider as basic and necessary, the variables that

136
customers consider as a must and that are probably common in the
level of performance among competitors.
After the discussion the managers decided to align their decision to
what revealed by the SSN: the corporate and product image needed to
be strengthen, in order to positively impact on satisfaction and foster
profitability. Surprisingly, before the meeting the image was generally
perceived as one of the less significant drivers of customer
satisfaction.

6. Conclusions
Summarizing, the present paper show how a SNN may support the
business model design and its managerial implications in terms of
knowledge generated.
The paper shows that SNN can be particularly useful when
exploited and shared knowledge is available a priori to support the
design of the architecture of the network.
The paper extends extant literature on business models since it
shows that data-mining tools, and in particular Structured Neural
Networks may improve the managers strategic capability even when
the managers do not hold similar managerial and technical
competencies and educational background. The successful adoption of
the structured neural network has been positively conditioned by the
mental attitude of the CEO that played a key role in determining the
general acceptance of the results by all other managers and the
effective employment of information in supporting decision making.
The paper also provide several managerial implications. It shows
that the preliminary design of the network can be considered as a
knowledge creation step, where managers experience and perceptions
are converted into explicit knowledge through externalization.
The cognitive map developed, which represent the architecture of
the SNN, can be considered an explicit vehicle of information that
allow to transfer, share and discuss company knowledge throughout
the organization and foster a general consensus about company
policies and strategies.
The quantitative results, expressed in terms of magnitude of the
impact that a variable is expected to produce, allow to test the

137
robustness of managers perceptions and provide a model that
facilitate decision making and strategic planning.
The integrated framework for knowledge sharing and discovery
allow to improve the organizational value. The managers should
continuously pursue the following key activities: to share and
externalize tacit knowledge, to gather information about customers, to
combine explicit knowledge (through data mining or alternative
methodologies) in order to create new knowledge, to adopt the
generated knowledge in decision making and to disseminate it
throughout the organization.

138
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140
 RHETORIC FOR PROMOTING INNOVATIONS IN
ACCOUNTING AND MANAGEMENT FIELDS: A
STRUCTURED LITERATURE REVIEW

Matteo La Torre
Department of Economics University of Chieti-Pescara
Pescara, Italy

Gianluca Scattu, John Dumay1

Department of Accounting and Corporate Governance Macquarie
University
Sydney Australia

Maurizio Massaro
Department of Economic Sciences and Statistics University of Udine
Udine Italy

1. Introduction
This papers purpose is to present a structured literature review on
the use of rhetoric to promote innovations in management and
accounting practices. Our motivation is to discover how promoters
use rhetoric to persuade managers, accountants and academics to take
up these ideas when they have not yet been extensively used in
practice or been subject to limited or no empirical testing. For
example, Nrreklit (Nrreklit, 2003) critiques the balanced scorecard
(BSC) and questions whether its initial success is due to its substance
as an innovative and practical theory or simply to its promotional
rhetoric? Nrreklits critique concludes that the text is not so
convincing as persuasivea feature characteristic of the genre of
management guru texts (Nrreklit, 2003). However, since 2003, the

1
Corrisponding author john.dumay@mq.edu.au
BSC has been successfully implemented by thousands of for-profit,
nonprofit and public sector enterprises and has been regularly listed as
among the top ten management tools used throughout the world
(Kaplan, 2012, p. 542). Thus, even accepting that the book
introducing the BSC (Kaplan and Norton, 1996) started as rhetorical
and persuasive text, the BSC is now firmly established in management
practice.
Similarly, innovations in management and accounting continue to
garner research into how these ideas are promoted to managers and
scholars leading to research based on a variety of questions: For
example; What explains the recent explosion in the number of
articles disseminating strikingly different ideas, such as downsizing
and the reengineering of corporations and governmental agencies?
(Abrahamson, 1996, p. 492). How do organizational stakeholders
come to perceive these techniques as rational and progressive rather
than as irrational and retrogressive? (Abrahamson, 1996, p. 263). Is
their diffusion driven only by the intrinsic merits of the innovation
and/or the characteristics of potential adopters (Green, 2004, p. 656)?
These are not merely rhetorical questions. Instead, they represent
research questions scholars ask in studies examining rhetoric to
promote new accounting and management practices (i.e. Abrahamson,
1996; Alvesson, 2001; Berland and Chiapello, 2009; Brown et al.,
2012; Green, 2004). Thus, there is an academic research interest in
how rhetoric is used to promote innovative accounting and
management practices.
Rhetorical appeals are the cognitive tools promoters use for
legitimising and justifying managerial and accounting innovations to
persuade potential adopters that the innovations are rational and useful
(Abrahamson, 1996, p. 268). As Burke (1969, p. 172) argues,
wherever there is persuasion there is rhetoric, and wherever there
is meaning there is persuasion. According to classical theory,
rhetoric is the art of persuasion aimed at creating, through speech,
language and stylistic techniques, persuasive communication able to
influence and manipulate an audience (Bryant, 1953, pp. 404405;
Burke, 1969, pp. 5657). Thus, there is an opportunity to investigate
how management gurus, regulators, standard setters, consultants, and
academics use rhetoric and persuasive strategy to introduce and

142
spread innovations in management and accounting practice
(Abrahamson, 1996, p. 254).
Therefore our research aims to explore and map the intellectual
territory related to the literature examining rhetoric in management
and accounting to provide insights, critical reflections and
implications for future research. To do so, we employ the structured
literature review (SLR) method according to Massaro et al.
(forthcoming). The SLR method is a recent innovation in performing
literature reviews that aims at developing research questions and
opportunities using empirical rather than interpretive evidence as
found in traditional authorship reviews (Dumay and Cai, 2014;
Dumay, 2014; Dumay et al., 2015; Guthrie et al., 2012; Massaro et al.,
2015). The SLR method uses three adaptable questions for developing
insights, critique and future research paths that we adapt for this paper
as follows:
RQ1. How is the research on rhetoric in the process of development,
introduction and promotion of innovations developing in accounting
and management literature?
RQ2. What are the main research paths, and their characteristics, in
this literature?
RQ3. What is, and what could be, the future of rhetorical studies in
accounting research, in particular?
We organise the article in five sections. First, we introduce the uses
of rhetoric to explain how this phenomenon is addressed in the
management and accounting literature relating to promoting
innovations. Second, section 3 describes the research SLR research
method and section 4 outlines the results to answer the first two
research questions. Finally, section 5 concludes by answering RQ3 by
outlining future research opportunities along with research limitations.

2. Rhetoric, persuasion and innovation

2.1 Rhetoric and innovation
The word rhetoric has several uses. For example, a question is
rhetorical if asked to produce an intended effect rather than to obtain
an answer. Rhetoric is derogatory when it is an empty language, or
language used to deceive, without honest intention behind it (Bryant,

143
1953, p. 403). Additionally, authors use the word rhetoric as opposite
to reality to identify a hypothetical representation of a phenomenon.
However, in this paper we use rhetoric as the oratory art of persuasion
through speeches, languages and stylistic techniques as originally
found in ancient Italy and Greece (Aristotle, 2007; Bryant, 1953).
According to Cope (1867, p. 1) rhetoric was invented in Sicily then
moved to Athens, where it grew and flourished in a congenial
atmosphere and soil. However, Aristotle is recognized as rhetorics
father despite its Sicilian roots. Aristotle defines rhetoric as the
ability, in each particular case, to see the available means of
persuasion (Aristotle, 2007, p. 37). Thus, rhetoric concerns the
manner in which philosophies, arguments and concepts are
communicated to persuade an audience.
According to Aristotle, persuasion has three distinctly inseparable
rhetorical arguments: Ethos, Logos and Pathos. Through Ethos, the
rhetors aim to develop and construct credibility and authority through
ethical appeals to obtain an audiences approval. For example, it
emphasises the persuasiveness of the speakers character by using
similitude, deference, expertise, self-criticism (Higgins and Walker,
2012, p. 197). Logos is an appeal to logic that provides facts to
support claims. For example, Nrreklit (Nrreklit, 2003, p. 595)
asserts it appeals to the recipients rational commitment and covers
everything humans are able to establish through reason through
logical, inductive and abductive argumentations. Pathos is an
emotional appeal, to a persons emotions and mood (Aristotle, 2007;
Higgins and Walker, 2012; Nrreklit, 2003). Therefore, depending on
the argument, the rhetor has three different tools to persuade their
audience.
According to Bryant (1953, pp. 401404) rhetoric has two subsets,
classic and new. Classic rhetoric as introduced in Greece deals with
how words are used for creating persuasive communication to
influence and manipulate an audience (Aristotle, 2007). The unethical
and manipulative dimension of classic rhetoric is embedded in the
rhetoric ability of the Sophists2, who Aristotle and Plato (Aristotles

2
Sophists were foreign itinerant teachers and intellectuals (e.g. Protagoras, Gorgias, and
Hippias) who had come to Athens and promised to provide practical verbal skills to

144
most famous student) identify as "professors of oratory" and
"counterfeiters of knowledge" (Edward Arrington and Schweiker,
1992, p. 512). Alternatively, new rhetoric (Burke, 1969) is a twentieth
century concept examining rhetoric that focuses on the authors use of
words in a specific context to persuade an audience (Green and Li,
2011). Thus, new rhetoric is not seen as unethical as the classic
rhetoric of the Sophists.
However, despite ethical criticisms, rhetoric is also an unavoidable
tool for introducing untested ideas. According to Green (2004, p.
655), adopting new practices is not only driven by their intrinsic
merits, but also by the effect of rhetoric. Any new ideas or knowledge
need legitimising and consensus to be adopted and spread. Language
and communication is therefore an inevitable tool to persuade the
others that an innovation is good, desirable and useful (Carter and
Jackson, 2004, p. 469). Specifically, Green et al. (2009, p. 16) argue
that at the early "stages of the institutionalization, new material
practices are supported with syllogistic, or expanded, arguments that
advocate the moral or pragmatic value of the material practice". At the
later stages, instead, syllogisms become claims and there is a
decrease in discursive justifications reflecting a rise in cognitive
legitimacy: comprehension followed by taken-for-grantedness. Thus,
the use of rhetoric and persuasive arguments is a physiological and
natural dynamic for introducing new practices and ideas.
Accordingly, promoting innovation is thus a rhetorical and
argumentative process (Carter and Jackson, 2004) that affects the
behaviours of social actors. Finstad (1998, p. 723) observes that any
change is the result of a dialogue between institutional actors either
to search for consensus as a discourse process, or as a rhetorical
process. This process, in which rival ideas, sponsored by rival
individuals or groups, compete for acceptance and support, suggests
that research might be fruitfully redirected toward innovation as an
argumentative process of enacting a new idea and persuading others

students for a fee used to offer education to young men in return of fees. They were famous
for their teachings on the political ability to persuade the citizens through rhetorical speech.
Indeed, their more characteristic teaching technique, whatever the subject chosen, was
epideixis, a demonstrative speech, long or short, often flamboyant, in which the sophist
undertook to demonstrate some proposition artistically" (Aristotle, 2007).

145
of the value of implementing it (King and Kugler, 2000, p. 485).
Rhetoric is therefore a main dynamic underpinning institutional
change that brings into shape social structure and behaviours.
The basic assumptions of such a rhetorical process of innovation
are consistent with institutional theory (Finstad, 1998, pp. 722723;
Green and Li, 2011, pp. 16891690), according to which three main
dynamics shape social structure, institutionalization and actions of
social actors: rational myths, isomorphism, and legitimacy (Scott,
1987, pp. 495497). The rhetorical institutionalism (Green and Li,
2011) suggests that language and rhetoric aim to legitimate and justify
certain practices and institutions (Green, 2004), and create a
generalized condition that the actions of an entity are desirable,
proper, or appropriate within some socially constructed system of
norms, values, beliefs, and definitions (Suchman, 1995, p. 574).
Additionally, Green et al. (2009, p. 11) argue that there is a direct
relationship between language/cognition and action of actors, and
through rhetoric, actors shape the legitimacy of practices by making
persuasive arguments that justify and rationalize practices. Rhetoric
is therefore a way to justify and legitimate an innovation, which
brings to its institutionalization a certain social context.
According to this institutional view, the use of rhetorical
communication in promoting and legitimating innovations is not
always a moral problem per se. In fact, rhetoric also concerns the use
of rational and sound argumentation to obtain consensus. For
example, metaphors can be a cognitive trope to explain new scientific
insights (Morgan, 1983, p. 601; Nrreklit, 2003, p. 596).
Nevertheless, communication can be persuasive without being
convincing. Even if any communication has a rhetorical and
persuasive dimension, we cannot state that each rhetorical/persuasive
communication is convincing. Convincing rhetoric differs from a
simple rhetoric because the former is developed and communicated on
the basis of sound argumentation supported by adequate, unbiased
and solid references, data and warrants (Nrreklit, 2003). Nrreklit
(2003, p. 595) argues that a scholarly text based on sound
argumentation is expected to appeal extensively to the recipients
logos and little to his or her pathos, because if a text appeals too
much to pathos and insufficiently to logos, then it becomes emotional,

146
imprecise and open to interpretation. Therefore, the ethical
dimension of rhetoric depends on the moral intents and claims of the
innovations promoter, the characteristics of the arguments and the
combination of appeals (emotional, logical or rational) to support the
claim(s).

2.2 Rhetoric for innovation in management and accounting

Investigating rhetoric in management and accounting is important
to unveil which rhetorical appeals and argumentations academics,
regulators, consultants and management gurus use to promote new
practices and innovations. New theories, paradigms and rules in
management and accounting are often characterised by unclear and
loaded concepts and un-sober argumentations (Nrreklit, 2003, p.
592;611). Additionally, as shown by Masocha and Weetman (2007, p.
95) and Young (2003, p. 637) rhetoric of accounting standard setters
is often characterized by silencing, obfuscation and unclear
justifications. Thus rhetoric is often associated with unsound
arguments to promote unproven innovations.
Consistent with the rhetorical view underpinning the promotion of
managerial innovations, Abrahamson (1996, p. 257) introduces the
concept of management fashion to identify a relatively transitory
collective belief, disseminated by management fashion setters, that a
management technique leads rational management progress. In the
rhetorical process for legitimating management practices,
management fashion setters, institutions, management gurus,
opinion leaders, business mass-media publications or business
schools, aim to identify the need for new management practices;
create new ideas to meet this need; and develop rhetoric to persuade
managers that the management technique is both rational and at the
forefront of management progress (Abrahamson, 1996, pp. 266
267). Thus, management fashion setting is the result of two
dynamics: managers need to adopt a broadly recognised management
technique as valid and rational; and fashion setters who are interested
in fulfilling and speculating on these managers needs.
According to the management fashion perspective, rhetoric
becomes an ethical issue if fashion setters use and abuse persuasive
rhetoric to promote and force innovations onto gullible managers,

147
even if the innovation promoted is wrong, useless or irrelevant. As
argued by Nrreklit (2003, p. 615), the problem is if the rhetoric is
combined with theory that is full of mistakes, the sources of errors are
numerous. Additionally, this issue become a greater problem if the
social effects of the spread of these theories are considered. As
Jackson (1999, p. 354) asserts, through the widespread use of
management fashions, management gurus and consultants, have a
great and tangible impact on the society and the working lives of
employees. Thus, from an ethical perspective, there is a duty of the
academic world to be sceptical of the diffusion of dubious theories
and to develop and spread the acceptance of theories based on sound
argumentation (Nrreklit, 2003, p. 614). Therefore the effects of
rhetoric is an ethical issue to address by both the promoters of
managerial innovations, academics, business community, consultants
and regulators, and the academics who have the duty to study the
argumentations supporting the promotion of these innovations.
Undertaking rhetorical analysis of communications underpinning
the promotion of new managerial practices, paradigms, ideas, rules
and concepts in management and accounting is an opportunity to
address this ethical duty. Rhetorical analysis allows to understand
how people within specific social situations attempt to influence
others through language (Selzer, 2003, p. 281) and discover how the
issuer of discourse manages text and context for persuasive purposes
(Leach, 2000; Selzer, 2003). Thus, this kind of investigation allows to
discover rhetorical strategies and persuasion appeals used to promote
new ideas, persuade their potential adopters and encourage their
adoption.
Research on rhetoric in management and accounting allows us
investigate the soundness of the argumentations provided by
academics, practitioners and regulators to justify and legitimate their
innovations. According to Nrreklit (2003, p. 615) the purpose of
these rhetorical studies would be not merely to evaluate the extent to
which any given text would be persuasive yet convincing, but also to
allow identification of good as well as problematic rhetoric as part of
a learning process which may offer directions for the development of
theories and models which may thus become still more convincing
although persuasive. In this context, managerial innovations can be

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debated as fads or fashions until they become entrenched, because
rhetoric helps promote them through Ethos and Pathos (or apparent
Logos) appeals until sound argumentations can be used to
institutionalise them.
To address rhetoric and ethics, research investigates the claims of
academics, practitioners and regulators in management and
accounting to unveil problematic rhetoric. Previous studies investigate
rhetoric use in promoting mainstream managerial practices such as
Business Process Re-engineering (Case, 1999; Jackson, 1996), Total
Quality Management (Green et al., 2009; Ozen and Berkman, 2007),
the concept of Value Creation (Bourguignon, 2005), and the BSC
(Nrreklit, 2003). For example, Jackson (1996, p. 586), in analysing
the rhetoric of Business Process Re-engineerings gurus, Hammer and
Champy, argues the power of the rhetorical vision of re-engineering
lies not in its innovative or logical qualities but in its dramatic power,
its ability to capture the managers attention and stir him or her to
dramatic action. Additionally, Fogarty et al. (1994, p. 30), assert that
there is a relevant need for research in accounting for investigating
rhetoric in accounting standard setting to understand the role of
ideology and power in this political process. Accounting
standards setters need to persuade companies and institutions about
the validity, the relevance and the acceptability of the new standards
they propose (Masocha and Weetman, 2007, p. 95). As noted by
Young (2003, p. 622), the FASB (Financial Accounting Standard
Board) continuously works at persuading institutions and practitioners
that its work is necessary, useful and correct. Thus, in research of
management and accounting, there is a great opportunity (and need) to
investigate how promoters of management and accounting
innovations use rhetoric to promote their new ideas.
As response to this opportunity, this literature review aims to
provide insights and critical reflections and depict future directions of
research on rhetoric in accounting and management. According to
Massaro et al. (forthcoming), literature reviews contribute to
developing research paths and questions by providing a foundation on
which to build on prior discoveries. Additionally, the need of
investigating rhetoric in promotion of innovations in management and
accounting has been claimed for a long time (Fogarty et al., 1994, p.

149
40; Green and Li, 2011, pp. 16891690; Nrreklit, 2003, p. 615).
Thus, we believe that it is the time to assess the past literature and the
possible future of this research on rhetoric.
In doing so, in this paper we review the literature on rhetoric to
answer to the following research questions:
RQ1. How is the research on rhetoric in the process of development,
introduction and promotion of innovations developing in accounting
and management literature?
RQ2. What are the main research paths, and their characteristics, in
this literature?
RQ3. What is, and what could be, the future of rhetorical studies in
accounting research, in particular?

3. Structured literature review: research questions and

methodology
A literature review should aim to assess the existing intellectual
territory to identify future research needs (Dixon-Woods, 2010). This
means that a literature review needs to critique an existing field of
knowledge before it can offer a path towards future research by
empirically developing research questions (Massaro et al.,
forthcoming). In the study, we adopt the SLR method to explore
rhetoric use for promoting management and accounting innovations
(SLR) (Massaro et al., forthcoming). Such a methodology derives
from and is already employed in some previous studies aiming to
review and critique some specific research fields (Dumay and Cai,
2014; Dumay, 2014; Guthrie et al., 2012). An SLR goes beyond the
traditional and authorship literature reviews as a methodology for
studying a corpus of scholarly literature, to develop insights, critical
reflections, future research paths and research questions using a
systematic, objective, replicable and reliable process (Massaro et al.,
forthcoming).
We developed this SLR following the ten steps proposed by
Massaro et al. (forthcoming):
1. Write a literature review protocol
2. Define the research questions of the study
3. Determine the type of studies and carry out literature search

150
4. Measure article impact
5. Define an analytical framework for the coding data
6. Establish literature review reliability
7. Test literature review validity
8. Code data
9. Develop insight and critique
10. Develop future research paths and questions
First, we defined a preliminary literature review protocol to
document the procedures followed to undertake and develop the
literature review (Massaro et al., forthcoming), and to make it
reproducible and reliable. In this document, we established the three
research question explained in the first section, according to the three
typical purposes of a SLR, Insight, Critique and Transformative
redefinitions (Alvesson and Deetz, 2000, pp. 1720).
After defining the research questions, we selected the literature to
review (Step 3). In doing so, two important elements should be
established: how to search and select the corpus of studies; and
defining the boundaries of the field (so the sources) where to extract
them (e.g. specific journals or field of study). Considering the former,
we employed a keyword search approach to find and collect the
studies related to the rhetoric and innovations (Massaro et al.,
forthcoming). Since the aim of this literature review is to inquire
studies in the broad research fields of accounting and management,
we took into account the major journals in these fields of studies.
Consequently, following the approach suggested by Massaro et al.
(forthcoming), we selected the first 20 journals with the highest
Google Scholar h5-index in the Business, Economics & Management
and in each of its related sub-categories of Accounting & Taxation;
Strategic Management; Marketing; Human Resources &
Organizations; International Business; Economic History;
Educational Administration; Entrepreneurship & Innovation.
Consequently, we searched 157 journals to find relevant articles.
There are two reasons for considering these journals. First, our
interest is to identify a pool of the most relevant studies that lead and
influence the literature. Focusing on the main journals in accounting
and management means to inquire how the studies that examine
rhetoric of innovations are rooted and established in the most

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influential literature over time. Additionally, using multiple sources
for extracting data is consistent with the purpose underlined by
Guthrie et el. (2012). Focusing on multiple journals allows us to
discover and understand the role of specialized journals where
research on a specific topic, in this case rhetoric, are published
(Broadbent and Guthrie, 2008; Guthrie and Murthy, 2009; Guthrie et
al., 2012).
To find relevant studies within these journals, a keyword search
based on the query looking for the term rhetoric* in the title,
abstract and keywords of articles in the Scopus base. The query allows
us to avoid articles in which the term rhetoric* appears only in the
text. Then, using Scopus export function the search results were
exported into a BibTeX database3.
Next, two researchers independently analysed the abstracts in order
select the relevant articles for the study. Only papers in which
rhetoric, as a tool for the persuasion and promotion of management
and accounting innovations, ideas, changes and techniques, is
investigated were selected. Therefore, the articles analysing rhetorical
appeals in other forms of communication, e.g. in corporate disclosure
and accountability (see for example, Brennan, Daly, and Harrington
2010; Brennan and Merkl-Davies 2014; Davison 2008; Higgins and
Walker 2012), were excluded. For a more careful selection the articles
on which we have had some doubts about their relevance had been
marked as uncertain, and consequently their full texts were
analysed. Finally, 63 articles were identified as rhetorical studies for
the SLR.
In Step 4, we measured the article impact using citation metrics.
According to Massaro et al. (forthcoming) using citation metrics as
proxy measures of the articles impact over time allows to understand
both how a certain literature develops and how and if the research
field under review is important. On the basis of some previous
studies which analysed research impact (Dumay and Cai, 2014;
Dumay, 2014; Dumay et al., 2015; Massaro et al., 2015), we

3
BibTeX (bibliography" and TeX) is a file format which are used to describe and process
lists of references, mostly in conjunction with LaTeX documents (http://www.bibtex.org/). It
therefore allows both to manage references information and create bibliographic database.

152
employed the following metrics to measure the literatures impact
over the last 10 years: total citations (CI), citations per year (CPY)
and yearly citations4. Accordingly, citation data was collected as at 10
March 2015 from Google Scholar. We use Google Scholar because it
provides the most comprehensive coverage, and its index has been
growing at a stable rate (Serenko and Dumay, 2015).

3.1 Analytical framework and coding approach

Concerning Step 5, Table 1 shows the analytical framework
developed for coding data. It is formed by 6 main categories: 1)
Articles information; 2) Research questions; 3) Discourse
investigated; 4) Data source; 5) Methodology; 6) Frameworks
and epistemological orientations used to investigate rhetoric; 7)
Contribution of the research. These aspects represent the elements
to be measured and analysed within the studies, to organize the
literature (Massaro et al., forthcoming) and develop insights on how
research on rhetoric is developed.
While the first category of the framework concerns some
information related to the articles selected journal and authors, the
second category aims to analyse the research questions and purposes
of the articles.
The third category, Discourse, captures the structure and the
characteristics of discourse in which rhetoric analysed in the studies is
embedded. This category is shaped according to the elements of the
communication triangle, sender (promoter of innovation), receiver
(target audience), message (innovation promoted) and context,
(Flower and Hayes, 1980; Kinneavy, 1969; Pixton, 1987; Sosnoski,
1999, pp. 130131), as basic model to investigate a discourse, and it
aims to collect the main elements of a discourse structure, and
specifically concern what Grosz and Sidner (1986, p. 175) call
intentional structure of a discourse. Since rhetorical analysis is a
particular discourse analysis aiming to critical examine a discourse to
discover rhetorical figures (van Dijk, 1993; Leach, 2000; Selzer,

4
In this study, total citations (CI) is the sum of citations an article received in the last 10
years (from 2005 to 2014). CPY is the ratio between CI of an article and the number of years
occurred from its publication (or 10 years if it is published before 2005).

153
2003), analysing these characteristics is important, since the discourse
issued by a rhetor is the main object of such an analysis (Leach,
2000, pp. 210212). According to Bauer and Gaskell (1999, p. 170), a
minimal social system is based on a communication system formed by
a dialogical triad as basic unit for the elaboration of meaning, and
involving two persons who are concerned with a specific object.
Categories 4, 5 and 7 were defined on the basis of frameworks
employed in previous literature reviews (Broadbent and Guthrie, 2008;
Dumay and Cai, 2014; Massaro et al., 2015). They are the main criteria
to inquire any literature as representing the main research design
features and the contribution/outcome of research (Hart, 1998, p. 44).
Specifically, while the category Methodology aims to investigate the
research methods employed in the literature on rhetoric, the category
Data source is used to analyse the types of sources of the discourses
examined in the articles. Also, the fifth category aims to examine the
contribution of the articles we review (Dumay and Cai, 2014), by
analysing the articles findings and implications.
Additionally, we introduced a further category (Category 6) to
analyse the theoretical and conceptual frameworks used to investigate
rhetoric, and examine the epistemological foundation of rhetorical
studies. This category is described in detail in section 4.5.

Table 1, Analytical framework

Analytical frameworks pre- Sub-categories created through the open Frequency

established categories coding approach (N. of articles)
1. Articles information
1.1 Journal
1.2 Authors
2. Research questions 000_Other 1 2%
010_Analysing rhetoric in regulatory reform 6 10%
or policy process 10 16%
020_Rhetoric in organizational change process 5 8%
030_Rhetoric for legitimating management
practices or institutional change 4 6%
040_Analysing adoption of an institutionalized
management practices (standards) 9 14%
050_Analysing rhetoric in standard-setting 17 27%
process
060_Analysing rhetorical moves of 8 13%
management (and accounting) gurus, theories
and practices 3 5%
070_Analysing the promotion of research,

154
 knowledge and innovations
080_Rhetoric concept in institutionalization
process and for institutional changes
3. Discourse
Structure and purpose of the
discourse investigated:
3.1 Type of innovation 000_No specific innovations investigated 5 8%
promoted 010_Management techniques, practices and 16 25%
What is being promoted by ideas 19 30%
rhetoric (what is the purpose 020_ Accounting techniques, practices,
of the discourse analysed)? concepts and paradigms 8 13%
030_Other new concepts, paradigms or new 4 6%
institutions 11 17%
040_Technological innovations and R&D
products
050_Organizational change (meso-level
analysis)
3.2 Issuer* 000_Other issuer 1 2%
Who is the issuer of the 010_Academics 20 32%
discourse? 020_Practitioners 32 51%
030_Policy makers and regulators 16 25%
3.3 Audience* 010_Academics 15 24%
Who is the audience of the 020_Practitioners 46 73%
discourse? 030_Policy makers and regulators 11 17%
040_Other type of audience 7 11%
4. Data source* 010_Interviews 13 21%
What data source is employed 020_Literature 33 52%
in the study? 030_Observations 9 14%
040_Non academic documents 31 49%
050_Other secondary data 4 6%
060_Speeches 3 5%
5. Methodology* 010_Linguistic/discursive investigation 41 65%
What methodology is used for methods 12 19%
investigating the use of 020_Case study 1 2%
rhetoric? 030_Experiment 10 16%
040_Literature review 4 6%
050_Longitudinal study 2 3%
060_Statistical test on quantitative data 1 2%
070_Viewpoint 1 2%
080_Ethnography
6. Frameworks and 010_Approaches for linguistic/discourse
41 65%
epistemological orientations* studies
20 32%
Conceptual, theoretical and 010_Rhetoric conceptual orientation
18 29%
epistemological frameworks 020_Hermeneutic conceptual orientation
8 13%
used to investigate the 030_(Post)-Structuralist orientation
25 40%
rhetoric phenomenon 020_Social and management theories
7. Contribution of research +
7.1 Findings *Sub-categories and grouping are explained in
section 4.6.

155
 7.2 Research implications 43 68%
7.3 Practical implications 16 25%
7.4 Policy implications 6 10%
7.5 Education implications 4 6%

*Total will be greater than 100% because the attributes of the category are not mutually
exclusive5.
+Each attribute is less than 100% because not all studies outlined each implication.

After defining the analytical framework, we imported all the

articles selected for the review into Mendeley to manage the
citations and then into NVivo for coding data (Step 8).
Consequently, in NVivo we created a set of nodes according to the
structure of the analytical framework, creating only the nodes related
to the pre-established categories from the first column of the Table
1. We created the sub-categories of the framework shown in the
second column of the Table 2 during coding through a grounded and
inductive approach (Elo and Kyngs, 2008). Therefore, our data
coding is a form of content analysis in which texts are analysed and
organised in specific categories (units) which are not always
predefined. Instead, they emerge in process of reading
(Krippendorff, 2013, p. 99).
Accordingly, two researchers coded the articles through an open
coding approach to define the sub-categories depicted in the second
column of the Table 1. This means that we derive the nodes
belonging to each pre-established category of the framework, the
first column of Table 1, according to text found in the articles. These
nodes are then grouped by the authors in more significant and
general categories (Elo and Kyngs, 2008) shown in the second
column of Table 1. We employ an inductive approach for two
reasons. First, this approach is consistent with the explorative
purpose of this review, because it allows for capturing more detailed
characteristics of the research reviewed, and to avoid to restrict
observations to limited and predefined categories. In fact,

5
Concerning the categories 3.2 Issuer and 3. 3 Audience, their attributes are not mutually
exclusive because, while for the latter a discourse can have more type of target audience, for
the former discourses of more than one issuer are analysed in some articles we reviewed.

156
developing of the analytical framework is an iterative process
(Dumay and Cai, 2014). Second, an inductive approach is suitable to
investigate an unexplored field like rhetoric because it is
recommended when there is not enough former knowledge about
the phenomenon or if this knowledge is fragmented (Elo and
Kyngs, 2008).
Concerning Step 6, we did not measure the reliability of the
coding because an open coding approach was employed. Thus, each
node was created according to what indicated by the data found in
the articles, and only later they are grouped by the authors.
Additionally, to ensure reliability two researchers were employed in
the coding process. In addressing Step 7, while the ensuring
construct and internal validity were considered in designing and
developing our SLR, the external validity of the study is explained in
the last section with the limitations.
Finally, the last two steps of this SLR, Develop insights and
critique and Develop future research paths, are described in the
following two sections

4. Insights and critiques of research on rhetoric

This section provides the results of the analysis to inform the
answers of the research questions of the literature review. Based on
the data collected related to the elements of the framework, insights
and critical reflections (Step 9) about how the investigation of
rhetorical phenomenon is developing in the studies of management
and accounting are presented. These results are described in the
following six sub-sections which are organized according to main
features (elements of the analytical framework) of research we
investigated:
a) Journals
b) Authors and articles impact
c) Themes and research paths of the literature investigate
d) Characteristics of discourse investigated (i.e. structure of
discourse and data sources)
e) Methods and frameworks employed in the research
f) Findings and implications of the research

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 4.1 Journals
As shown in Figure 1, the literature we analysed were produced
starting from the 1990. The first article Espeland and Hirsch (1990)
was published in Accounting, Organization and Society (AOS). After
this first article, rhetorical studies are characterized by three major
waves with crests between 1995 and 1997; 2000 to 2005, and from
2010 to 2012. About the 50% of the articles are published in the last
10 years.

Figure 1. Number of articles distribution over time

Table 2 shows the statistics, number of articles selected, CPY and

total citations (CI). In a literature review, analysing the main journals
publishing this research allows us to identify which journals are
interested in the articles, and so which of them have contributed most
to development the research (Guthrie et al., 2012).

Table 2. Journals publishing rhetorical studies

N. of CPY Total citations
Journal name articles (avg) (2005- 2014)
Academy of Management Review (AMR) 4 55.86 2219.00
Accounting, Organizations and Society (AOS) 9 10.07 890.00
Academy of Management Journal (AMJ) 4 20.92 743.00
Journal of Management Studies (JMS) 10 7.34 613.00

158
Human Relations (HR) 3 21.40 642.00
Organization Science (OS) 2 31.31 565.00
Organization Studies 8 6.66 387.00
Accounting, Auditing and Accountability Journal (AAAJ) 6 3.35 168.00
Critical Perspectives on Accounting (CPA) 7 1.67 106.00
British Journal of Management (BJM) 1 11.00 110.00
MIS Quarterly: Management Information Systems 1 5.50 11.00
The International Journal of Human Resource Management 2 2.67 24.00
Accounting Horizons 1 5.00 50.00
Research Policy 1 4.00 40.00
Omega 1 1.40 14.00
Technology Analysis and Strategic Management 1 1.00 3.00
Accounting History 1 1.00 1.00
Journal of International Business Studies 1 0.67 2.00

In this case, we find that research on rhetoric emanates from only a

few journals. The seven journals publishing the most articles: Journal
of Management Studies (JMS) (10 articles), Accounting,
Organizations and Society (AOS) (9 articles), Organization Studies (8
articles), Critical Perspective of Accounting (CPA) (7 articles),
Accounting, Auditing and Accountability Journal (AAAJ) (6 articles),
Academy of Management Journal (AMJ) and Academy of
Management Review (AMR). Each of these journals received more
than 100 citations for the articles in the last ten years and make up the
bulk of the citations.
However, we observe that the more specialised journal on research
on rhetoric does not have the greatest impact in developing this
literature. The JMS is the main journal for publishing of rhetorical
studies and is the fourth journal for total citations (since 2005).
However, the average CPY (7.34) of this journal is low in comparison
to management journals (Table 2) such as AMR, AMJ and BJM. This
means that each article published in this journal has had a lower
influence in developing research on rhetoric. Alternatively, the AMR
is the journal with the highest number of citations (more than 2000)
and CPY (55.86).
Particularly, rhetorical studies in accounting literature are from
three main journals AOS, AAAJ and CPA with 21 articles.
Nevertheless, their average CPY is lower than the other journals of the

159
list. This means that rhetorical studies in accounting have had a
smaller impact on literature. Only AOS counts an average CPY equal
to 10, while the CPY of the other ones is less than 4. Thus, while
these journals publish rhetorical studies the impact of the studies is
limited.
Research on rhetoric first developed in accounting journals with
five of the first rhetorical studies (Bealing et al., 1996; Covaleski
and Dirsmith, 1995; Edward Arrington and Schweiker, 1992; Nelson
Espeland and Hirsch, 1990; Thompson, 1991) appearing in AOS
from 1990 to 1996. Other journals then started to publish articles on
rhetoric, CPA (Amernic, 1996), the AMR (Abrahamson, 1996), JMS
(Jackson, 1996) and AMJ (Abrahamson, 1997). Only after 2003 did
rhetorical studies appear in journals like Organization Studies.
In summary, we find that research on rhetoric emanates from a
small number of journals in accounting and management. However,
we observe that there is no relationship between research impact
(CPY) and journal specialization (numbers of articles). Additionally,
although the first rhetorical studies are from accounting journals,
these articles have a lower impact compared articles published in
management journals.

4.2 Authors and articles impact

Table 3 lists the ten most cited articles we analysed sorted by
CPY. As can be seen, excluding Boiral (2007) and Green et al.
(2009), all these articles are published before 2005. Abrahamsons
paper (1996) is the most cited article with the most CPY, as he is
one of the most influential and specialized authors in research on
managerial fads and fashion, and innovation diffusion. Abrahamson
in this article introduces and analyse the management fashion
phenomenon, being one of the first scholars to conceptualize the
rhetoric that characterize the process through which fashion
setters, consulting firms, management gurus, business mass-media
publications, and business schools, use to promote, disseminate and
legitimate certain management practices (Abrahamson, 1996). He
argues that this process involves the elaboration of a rhetoric that
can convince fashion followers that a management technique is both

160
rational and at the forefront of management progress (Abrahamson,
1996, p. 267).

Table 3, Ten most cited articles sorted by CPY

Tot. cit.
References Title Journal CPY
(last 10 years)
161.
(Abrahamson, 1996) Management fashion AMR 1614
4
Knowledge Work: Ambiguity, Image
(Alvesson, 2001) HR 56.7 567
and Identity
The Balanced Scorecard: What is the
(Nrreklit, 2003) score? A rhetorical analysis of the AOS 47.8 478
Balanced Scorecard
Organizational change as discourse:
Communicative actions and deep
(Heracleous and
structures in the context of AMJ 40.9 409
Barrett, 2001)
information technology
implementation
(Green, 2004) A rhetorical theory of diffusion AMR 33.1 331
Capitalizing on paradox: The role of
(Fiol, 2002) language in transforming Org. Sc. 32.0 320
organizational identities
Corporate greening through ISO
(Boiral, 2007) Org. Sc. 30.6 245
14001: A rational myth?
Feminization unveiled: Management
(Fondas, 1997) AMR 23.8 238
qualities in contemporary writings
Suspended in self-spun webs of
significance: A rhetorical model of
(Green et al., 2009) AMJ 20.8 125
institutionalization and
institutionally embedded agency

The impact of rhetorical studies is influenced by the level of

specialization of their authors in research on rhetoric. We find that the
authors of five of the most cited articles (Abrahamson, 1996;
Alvesson, 2001; Green, 2004; Green et al., 2009; Heracleous and
Barrett, 2001) are about specialized research topics related to the
investigation of rhetoric: managerial fads and fashion and innovation
diffusion for Abrahamson (Abrahamson, 1996, 1997); rhetoric and
cognitive linguistics for Green, who is the author of the rhetorical
theory of diffusion (Green, 2004); organization change and
organizational discourse of Heracleous (Barrett et al., 2013;
Heracleous and Barrett, 2001); rhetoric of the knowledge firm for
Alvesson (Alvesson, 2001, 2011). Thus, the impact of rhetorical

161
studies depends most on the reputation and experience their authors
have in a research field related to rhetoric.
Additionally, rhetorical studies in accounting have not had a great
impact on literature. Only one article in Table 2 (Nrreklit, 2003) is
from an accounting journal (AOS). Additionally, among the articles
published in accounting journals (24), 16 articles have less than 5
CPY and only two articles (Nrreklit, 2003; Young, 2003) have CPY
greater than 10. Therefore, research on rhetoric is not yet well
recognized and developed in the accounting literature and within the
related academic community.
Furthermore, many authors (93) are involved in the production of
the articles analysed and is not characterized by dominant authors
(Massaro et al., 2015) with only 12 authors having produced more
than one article. Compared to the management and organization
studies, accounting literature on rhetoric has lower entry barriers and
few specialized authors with only two of the 12 authors mentioned
above, Fogarty and Dirmisth, being accounting scholars.

4.3 Themes and research paths

This sub-section provides results concerning the main themes and
research paths that characterise the articles. Understanding which
innovations are the subject of rhetorical studies informs us about the
topics of interest to scholars and managers. From Table 1, category
3.1 Type of innovation promoted, classifies the articles according to
the purpose of the discourse and innovation type. The absolute and
relative frequencies of its sub-categories show that most articles
analyse rhetorical appeals in discourses aiming to promote:
accounting (30%) management techniques, practices and ideas (25%);
and organizational changes (17%), these being meso level analyses,
focussing on rhetoric in organizational contexts.
Additionally, according to the descriptive statistics related to
category 2. Research questions (see Table 1), the main research
objectives in this literature concern the rhetoric investigation of
management gurus, theories and practices (27%); organizational
changes (16%); accounting standard-setting processes (14%); and the
promotion of research, knowledge and innovations in general (13%).

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 Taking into account these two categories of the framework (2.1
and 4.1), we performed a cluster analysis6 to obtain more
meaningful groups of studies having similar research purpose, and to
identify the main research themes addressed by rhetorical studies. We
chose these two variables because they represent the purposes and
topics of the research. As a result, we identify seven clusters.
According to Table 4, we find that although several research themes
characterize this literature, rhetorical studies have developed on three
main research paths clusters Cl1: Managerial innovations, Cl4:
Accounting standard setting and Cl5: Organizations and the
organizational change process).

Table 4, Clusters in rhetorical studies

Last 10 years
Overall sample
articles
CPY CPY
Clusters Freq. Perc. Freq. Perc.
(sum) (avg)
Analysing rhetoric in managerial
Cl1 innovations promotion, 16 25% 7 23% 372 23.3
institutionalization and adoption
Non-empirical studies aiming to
conceptualize the role of rhetoric in the
Cl2 5 8% 2 6% 52.6 10.5
institutionalization process of innovations
in general
Analysing the rhetoric in the process of
promotion and legitimation of research,
Cl3 6 10% 4 13% 36.4 6.1
knowledge and technological
innovations
Analysing rhetoric in accounting
Cl4 standard-setting process and the 13 21% 5 16% 96.8 7.4
promotion of accounting practices
Meso-level analysis on the role of rhetoric
Cl5 into the organizations and the 11 17% 5 16% 122.6 11.1
organizational change process
Analysing rhetoric in accounting
Cl6 6 10% 4 13% 11.6 1.9
regulatory reforms and policy process
Analysing rhetoric related to the
institutionalization of other type of
Cl7 6 10% 4 13% 25.9 4.3
innovations (new concepts, paradigms,
institutions, etc)
Total 63 31

6
Cluster analysis uses Glowers dissimilarity measure for categorical data, and the Wards
linkage method for the agglomerative hierarchical clustering. The ideal number of clusters to
extract (7) was determined on the basis of the Calinski-Harabasz index (Calinski and Harabasz,
1974).

163
 First, cluster Cl1 concerns studies that analyse rhetoric in the
process of promoting, legitimising and adopting managerial
innovations and ideas, such as Business Process Re-engineering
(Case, 1999; Jackson, 1996), Total Quality Management (Green et al.,
2009; Ozen and Berkman, 2007), ISO 14001 (Boiral, 2007), Value
Creation (Bourguignon, 2005) and Taylors Scientific Management
(Monin et al., 2003). Second, cluster Cl4 concerns accounting
studies analysing rhetorical claims underpinning: accounting standard-
setting processes (e.g. Jupe, 2000; Masocha and Weetman, 2007;
Young, 2003), the institutionalization of specific accounting practices
(Nrreklit, 2003), Double-Entry accounting (Thompson, 1991), and
general accounting knowledge (Chabrak, 2012; Edward Arrington and
Schweiker, 1992). Cluster Cl5 includes studies analysing rhetoric in
discourses and processes for introducing innovations and changes in
smaller social contexts at the organizational level such as the New
Public Management agenda (Mueller et al., 2004) rationalization
(Alvesson, 2011) and technological project (Leonardi, 2008; Symon,
2005), management practices (Huang and Tansley, 2012; Mueller and
Carter, 2005) and organizational changes in general (Carter and
Mueller, 2002; Finstad, 1998; Fiol, 2002; Heracleous and Barrett,
2001; Sorge and Van Witteloostuijn, 2004).
Additionally, Table 4 shows that the research impact (CPY) is
different across clusters with management studies in cluster Cl1
having the greatest impact (CPY 23). Additionally, concerning the
accounting studies, while the CPY of cluster Cl6 is very low (1.9),
the articles of cluster Cl4 have an average CPY (7.4) closer to the
impact of clusters Cl2 and Cl5. The research theme in cluster
Cl4, addressing rhetoric in accounting standard setting, is more
developed and spread in accounting literature. However, the CPY of
this cluster is due mostly to the high CPY of Nrreklits paper (2003)
which does not examine the rhetoric promoting standard-setting.

4.4 Characteristics of discourses analysed in literature

As shown in Table 1 in relation to the issuers of discourse
(category 3.2), the articles mostly focus the rhetoric of practitioners
(51%) and academics (32%), while just the 25% of the research
examines the argumentations of policy makers and regulators.

164
 Nevertheless, the main issuers of discourse (the promoters of
innovations) investigated in the rhetorical studies depend on are
research themes (clusters). Indeed, as shown in Figure 2, while the
dominant promoters of innovations investigated in the organization
studies (cluster Cl5) are practitioners, which include managers,
employees, consultants and other practitioners, cluster Cl1 analyses
rhetorical appeals issued mainly by academics. Alternatively, rhetoric
of policy makers and standard setters is investigated primarily in
accounting studies (clusters Cl4 and Cl6). More than 60% of the
studies of cluster Cl4 investigate rhetoric of such a type of issuers.
Additionally, the practitioners examined in accounting studies of these
two clusters belong to the category of accounting profession in most
cases (Baker 2005; Hoffmann & Zalch 2014; Jupe 2000).
Concerning cluster Cl2, no issuers appears in Figure 2 because the
articles do not analyse any particular discourse, as they aim to theorize
the role of rhetoric in institutionalization of innovation (Carter and
Jackson, 2004; Green and Li, 2011; Green, 2004; Sillince and Barker,
2012). Accordingly, each cluster we identified specialises
investigating rhetoric from a particular issuer.

Figure 2, Issuers (promoters of innovations) of the discourses analysed in the articles

of each cluster

Cl1 Cl2 Cl3

1
.2 .4 .6 .8
0

Cl4 Cl5 Cl6

1
.2 .4 .6 .8
0

Cl7
1
.2 .4 .6 .8
0

Other issuers Academics

Practitioners Policy makers and standard setters

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 The association analysis using Cramers V as measure of
association between two nominal variables (in this case the clusters
and the type of issuers), corroborates what asserted above. There is a
good association between clusters and the following type of issuers:
academics (Cramrs V7 equal to 0.60) with clusters Cl1, Cl2 and
Cl5; practitioners (Cramrs V equal to 0.55) with cluster Cl5;
and the policy makers and standard setters (Cramrs V equal to 0.67)
with clusters of accounting studies (Cl4 and Cl6).
These results are consistent with Figure 3, which shows the data
sources used in the research of each cluster. Literature is the dominant
source in clusters: Cl1, since this cluster investigates rhetoric of
academics; and Cl2, since it concerns theoretical contributions and
conceptual works. While cluster Cl5 has not a dominant type of data
source, non-academic documents represent the main data sources for
both accounting studies (Cl4 and Cl6) and cluster Cl3, which are
respectively focused on the rhetoric of policy makers and regulators
and practitioners.

Figure 3, Data sources employed in the articles by cluster

Cl1 Cl2 Cl3

1
.2 .4 .6 .8
0

Cl4 Cl5 Cl6

1
.2 .4 .6 .8
0

Cl7
1
.2 .4 .6 .8
0

Interviews Literature
Observations Non-academic documents
Other secondary data Speeches

7
Cramrs V is based on the Pearsons chi-squared and its value can be between 0 and 1: 0
indicates no association between the variable, while 1 a strong association.

166
 Additionally, concerning the audience of the discourses
investigated in the articles, the related statistics in Table 1 show that
most of the innovations investigated in the articles involve
practitioners (73%), while a lower number of discourses aim to
persuade academics (24%) and policy-makers and regulators (17%).
The relevant dominance of practitioners, as main audience of
rhetorical discourse, is evident in each cluster (Figure 4).

Figure 4, Audience of the discourses by cluster

Cl1 Cl2 Cl3

1
.2 .4 .6 .8
0

Cl4 Cl5 Cl6

1
.2 .4 .6 .8
0

Cl7
1
.2 .4 .6 .8
0

Academics Practitioners
Policy makers and regulators Others
Graphs by Cluster

4.5 Methods and frameworks employed in research

Table 5 shows that researchers employ several methods. The
dominant methods for investigating rhetorical strategies are discursive
and linguistic methods, which aim to analyse particular aspects and
characteristics of a discourse or textual material (e.g., rhetorical
analysis, discourse analysis, semiotic analysis, etc) with 41 of the
articles we examined (65%) employing these methods. However,
other types of research methods are widely used in two types of
research (clusters): case studies, in the organization studies (Cl5); and
literature reviews, in theoretical and conceptual contributions (Cl2).

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 Table 5, Methodologies employed for investigating rhetoric

Research methods Times Freq.

Cl1 Cl2 Cl3 Cl4 Cl5 Cl6 Cl7
employed used %

Case study 12 19% 1 0 2 1 8 0 0

Experiment 1 2% 0 1 0 0 0 0 0
Literature review 10 16% 1 4 0 2 2 0 1
Longitudinal study 4 6% 1 0 0 0 2 0 1
Statistical test on
2 3% 1 0 0 0 0 0 1
quantitative data
Viewpoint 1 2% 1 0 0 0 0 0 0
Ethnography 1 2% 0 0 0 0 1 0 0
Linguistic/discursive
41 65% 12 0 5 10 4 6 4
investigation methods
Textual analysis 4 6% 3 0 0 0 0 1 0
Archival analysis 3 5% 0 0 0 0 0 1 2
Content analysis 6 10% 1 0 0 4 0 0 1
Critical discourse analysis 2 3% 1 0 0 0 0 1 0
Deconstructive analysis 5 8% 1 0 0 3 0 1 0
Discourse analysis 7 11% 2 0 1 1 2 1 0
Ethnomethodological
1 2% 0 0 1 0 0 0 0
conversation analysis
Fantasy theme analysis 1 2% 1 0 0 0 0 0 0
Linguistic analysis 2 3% 1 0 0 0 0 1 0
Rhetorical analysis 17 27% 4 0 4 3 2 2 2
Semiotic analysis 1 2% 1 0 0 0 0 0 0

Although the discursive and linguistic methods are the main

research methods to investigate rhetoric (65%), different types of
analysis are employed in these linguistic/discursive studies. Indeed,
we find that 11 types of analysis (e.g. textual analysis, content
analysis, discourse analysis, etc...) belong to this category of methods
(Linguistic/discursive investigation methods in the Table 5).
Additionally, we observe that, although rhetorical analysis is the most
common method, it is used only in the 27% of these rhetorical studies.
According to these observations, we get a preliminary evidence on the
lack of methodological consistency among the articles.
This methodological inconsistency in the linguistic studies occurs
also across clusters (Figure 5). Since the literature we review derive
from different research domains (management, organization studies
and accounting), considering the research themes we identified, we
discovered that, apart from cluster Cl3 in which rhetorical analysis
and the case study are the main methods, there is not a particular
discursive method prevailing in each cluster.

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 Figure 5 Methods for linguistic/discursive studies by cluster

Cl1 Cl2 Cl3

.2.4.6.8
0

Cl4 Cl5 Cl6

.2.4.6.8
0

Cl7
.2.4.6.8
0

Textual analysis Archival analysis

Content analysis Critical discourse analysis
Deconstructive analysis Discourse analysis
Ethnomethodoogical analysis Fantasy theme analysis
Linguistic analysis Rhetorical analysis
Semiotic analysis

Such a methodological inconsistency can be observed especially in

the most important clusters (i.e. Cl1 and Cl4) and those ones related to
the accounting field (i.e. Cl4 and Cl6). 9 different methods are used in
the 12 discursive studies of cluster Cl1; 4 different analyses in the
10 studies of cluster Cl4 and 7 in cluster Cl6.
Additionally, it worth to note that, although a minor inconsistency
characterizes cluster Cl4, rhetorical analysis, as being the proper
method for analysing rhetorical appeals, is employed only in three
studies in this cluster (Hoffmann and Zlch, 2014; Masocha and
Weetman, 2007; Nrreklit, 2003). In place of rhetorical analysis, other
analysis types are widely used such as content analysis (Hayne and
Free, 2014; Hoffmann and Zlch, 2014; Jupe, 2000; Street et al., 1997)
and deconstructive analysis (Baker, 2005; Chabrak, 2012; Young,
2003). As it will be discussed in the next section about the future of
research on rhetoric in accounting, this aspect has relevant implications
on the investigation of rhetoric, because meaning oriented analysis like
content analysis, compared to the rhetoric analysis, are not enough to
analyse and identify in a text the broad set of characteristics (e.g.
stylistic, syntactic, semiotic) underpinning rhetorical appeals.

169
 We conclude that the studies under review are characterized by
methodological inconsistency and a little use of rhetorical analysis, as
research method to analyse rhetoric.
After having analysed the research methods, Table 6 lists the
frameworks and the epistemological paradigms used in the
linguistic/discursive studies to explain rhetoric phenomenon and inform
its analysis. These frameworks belong to three main philosophical
orientations: rhetoric; hermeneutic; and (Post)-Structuralist.

Table 6, Frameworks used in linguistic/discursive studies

Single paradigm Main orientations

or framework employed
Paradigms, philosophical and conceptual Times Times
Freq. %
frameworks employed in linguistic studies used Freq. % used

Rhetoric conceptual orientation 20 31.7

Other rhetorical orientations 2 3.2
Aristotle's conception 10 15.9
Cockcroft & Cockcroft rhetorical devices
1 1.6
categorization
Gill and Whedbe's rhetoric approach 1 1.6
Jupe's framework (rhetorical argument) 1 1.6
Symbolic rhetorical devices (myths, metaphor,
5 7.9
metonymy, etc)
Science VS Hype rhetorical argument 1 1.6
Smith's rhetorical categories 1 1.6
Theory of mythologies (Barthes) 1 1.6
Toulmin's model 1 1.6
Warnock's article (rhetorical devices) 1 1.6
Hermeneutic conceptual orientation 18 28.6
Other hermeneutic frameworks 2 3.2
Burkean approach 5 7.9
Frug's political-bureaucratic rhetoric 1 1.6
Gidden's hermeneutic approach 1 1.6
Ricoeur's concept of ideology 2 3.2
Social constructivist approach 7 11.1
Symbolic convergence theory (Bormann) 3 4.8
Grounded theory 2 3.2
Reification concept (Marxist) 1 1.6
(Post-)Structuralism orientation 8 12.7
Other structuralist orientations 1 1.6
Derrida's perspective 2 3.2
Faircloughs approach to critical discourse
1 1.6
analysis
Argumentation theory 2 3.2
Cross-national Reconstruction of Managerial
1 1.6
Practices
Linguistic model 1 1.6
Foucault's conception 1 1.6

170
 These three main orientations represent the philosophical
interpretations of the meaning of any discourse and its role in a social
context, and so the main epistemological view to analyse it.
According to Heracleous and Barrett (2001, p. 760), rhetoric and
hermeneutics share a constructive as opposed to an instrumental view
of language and they also have close historical and conceptual
links. Both speaking (identified with rhetoric) and understanding
(identified with hermeneutics) are basic human capacities that are
interdependent and inseparable (Heracleous and Barrett, 2001, p.
760). However, while hermeneutic approaches are focused on
interpretations of text and the nature of its interpretation for
understanding text and searching central meaning and themes, rhetoric
analytics are basically based on a classical view of rhetoric. This latter
focuses on the study of language, its rhetorical use and its impacts on
social agents in a positive-normative order, as well as on its
situational, temporal, and social context (Heracleous and Barrett,
2001, p. 761). The third orientation concerns those studies based on a
structuralist view of discourse analysis, which imply the
deconstruction of text as philosophical movement and its connection
with the social reality construction (Chabrak, 2012; Fondas, 1997;
Malmmose, 2014; Newton and Harte, 1997; Ozen and Berkman,
2007; Thompson, 1991).
Nevertheless, even in this case, a lack of consistency in the
epistemological approaches lying the rhetorical study can be
uncovered. According to the Table 7, 27 different frameworks are
used to investigate rhetoric among the 41 linguistic/discursive studies.
Specifically, even if the Aristotles conception of rhetoric with his
three appeals, Ethos, Logos and Pathos, is the most used framework,
it is used just in 10 articles.
Additionally, Table 7 depicts the social and management theories
used in the articles as theoretical foundation for explaining the rhetoric
phenomenon in the process of innovation diffusion. As can be observed,
the institutional and neo-institutional theories are the most widespread
social theory used as theoretical foundation of the institutionalization of
innovation (e.g. Covaleski and Dirsmith, 1995; Green, 2004; Green et
al., 2009; Irvine, 2012; Mueller and Carter, 2005). As explained in the
second section of this paper, this institutional perspective recognizes the

171
role of language in this institutionalization process, and the role of
rhetoric as mean for legitimating and justifying the adoption of certain
innovation (Green, 2004).
Finally, we find that rhetorical studies have been developed by
employing different frameworks and epistemological approaches.

Table 7, Other theoretical frameworks employed (social and management theories)

Other theoretical frameworks employed Times used Freq. %
Social and management theories 25 39.7
Other social and management theories 2 3.2
Computerization Movement Theory 1 1.6
Change in management practices 2 3.2
Contingency theory 1 1.6
(Neo) Institutional theory 17 27.0
Pendulum thesis 1 1.6
Performance-gap thesis 1 1.6
Pragmatic ambiguity and the sociology of transaction 1 1.6
Social identity theory 1 1.6
Theory of management fashion 2 3.2
Latourian framework 1 1.6

4.6 Findings and implications of the studies

In the previous sub-sections we observed a lack of consistency in
the research methods and frameworks employed in the articles. One of
the effects of this inconsistency in the frameworks concerns the
interpretation and comparability of the findings of the articles. Since a
framework (e.g., the Aristotelian three appeals, Ethos, Pathos and
Logos) represents the mean to frame, collect and analyse rhetorical
essays and argumentations in a discourse, employing different
frameworks in a corpus of studies bring to get different interpretations
of the rhetorical proofs discovered in the studies.
This effects have been noted by the authors during the analysis of
the findings. Accordingly, we thought to group the open nodes of the
Findings in meaningful categories, listed in Table 10, according to
the dominant framework8 employed in each study. This allowed a

8
We considered the dominant framework because two or more frameworks are used in some
articles.

172
better understanding of the types of the findings and, additionally, to
analyse the consistency and the dominant frameworks in each of
them.
Table 8 is a two-way table showing the absolute frequencies of
these categories and the Chi-squared contribution resulting from the
association analysis. These results, a low correlation (Cramrs V
equal to 0.41) between clusters and the type of findings (frameworks),
suggest that the inconsistency in the frameworks occurs also within
each cluster. This means that each cluster is not characterized by any
dominant framework, and alternatively, there is a high heterogeneity
of frameworks employed. Figure 6, concerning frequency distribution
of the type of findings by cluster, shows more clearly this condition.

Table 8, Findings categories by cluster

Cells content:
Number of articles
Chi-squared Clusters
Type of findings Cl1 Cl2 Cl3 Cl4 Cl5 Cl6 Cl7 Total
No findings 0 0 0 1 1 1 0 3
0.8 0.2 0.3 0.2 0.4 1.8 0.3 4
010_Aristotle's conception of rhetoric 4 1 2 2 1 0 0 10
0.8 0.1 1.2 0 0.3 1 1 4.3
020_Symbolic rhetorical devices approach 0 1 0 1 0 0 2 4
1 1.5 0.4 0 0.7 0.4 6.9 10.9
030_Other rhetorical approach 0 0 1 1 1 0 2 5
1.3 0.4 0.6 0 0 0.5 4.9 7.6
040_Social constructivist approach 1 0 0 1 3 1 0 6
(hermeneutic) 0.2 0.5 0.6 0 3.6 0.3 0.6 5.8
050_Burkean approach (hermeneutic) 4 0 1 0 0 0 0 5
5.9 0.4 0.6 1 0.9 0.5 0.5 9.7
060_Other Hermeneutic approaches 1 0 0 0 1 1 0 3
0.1 0.2 0.3 0.6 0.4 1.8 0.3 3.7
070_(Post)-Structuralist view 2 1 0 2 0 1 0 6
0.1 0.6 0.6 0.5 1 0.3 0.6 3.7
080_Institutional theory based 1 1 0 1 3 1 2 9
0.7 0.1 0.9 0.4 1.3 0 1.5 4.9
090_Other social theories based 2 0 0 1 1 1 0 5
0.4 0.4 0.5 0 0 0.6 0.5 2.4
000_No framework based findings 1 1 2 3 0 0 0 7
0.3 0.4 2.7 1.7 1.2 0.7 0.7 7.6
Total 16 5 6 13 11 6 6 63
11.6 4.7 8.4 4.5 10 7.8 17.6 64.6

173
 Figure 6, Distribution of types of findings by cluster (overall sample)

Cl1 Cl2 Cl3

4
3
1 2
0

Cl4 Cl5 Cl6

4
Frequency

3
2
1
0

0 5 10 0 5 10

Cl7
4
3
2
1
0

0 5 10
Findings

Nevertheless, even if 8 type of frameworks characterize cluster

Cl1, two of them are more often used: the Aristotelian three appeals
(Bourguignon, 2005; Green et al., 2009; Ozen and Berkman, 2007;
Salk, 2012); and the Burkean approach (Case, 1999; Jackson, 1996,
1999; Monin et al., 2003). We argue the same for cluster Cl5 in
which social constructivist approaches (Carter and Mueller, 2002;
Finstad, 1998; Mueller and Carter, 2005) and institutional theory are
the main theoretical foundations.
Concerning the accounting studies, a higher inconsistency
characterize their clusters. 8 types of findings occur in cluster Cl4,
and 6 in cluster Cl6, an average of one for each study. Additionally,
in the former, no framework lye the findings of three studies (Collett
et al., 2001; Edward Arrington and Schweiker, 1992; Street et al.,
1997), and the two most used frameworks are employed respectively
in just two studies: the Aristotelian framework (Masocha and
Weetman, 2007; Nrreklit, 2003) and structuralist approaches
(Chabrak, 2012; Thompson, 1991).
We also performed the same association analysis on the sample of
articles published in the last 10 years to test if the inconsistency

174
 observed decreased in this period. The result sustains this hypothesis.
There is a higher associations (Cramrs V equal to 0.59) between
clusters and the frameworks employed. According to the Chi-square
contributions and Figure 7, this is due to the affirmation of two main
frameworks: the Aristotelian framework in cluster Cl1 and the
social constructivist approach in cluster Cl5. However, an
improving of consistency is ascribed to only these two clusters.

Figure 7, Distribution of types of findings by cluster (sample of studies published in the

last 10 years)

Cl1 Cl2 Cl3

4
3
2
1
0

Cl4 Cl5 Cl6

4
Frequency

3
2
1
0

0 5 10 0 5 10

Cl7
4
3
2
1
0

0 5 10
Findings

Another relevant aspect related to the outcome of research concern

the implications of the articles. According to the Figure 8, most of the
articles recognize implications mostly for research. Paradoxically, the
studies aiming to conceptualize and theorize the rhetoric in the
institutionalization process of innovation (Cl2) are those ones that
recognize more often the implication for the practice.
Alternatively, policy implications are very infrequent in the
literature we analysed, and they concern some accounting studies of
clusters Cl4 (Collett et al., 2001; Fogarty et al., 1994; Masocha and

175
Weetman, 2007; Street et al., 1997) and Cl6 (Malmmose, 2014) and
one of cluster Cl3 (Sovacool and Brossmann, 2014). Nevertheless,
if we consider that the accounting studies (Cl4 and Cl6) are
focused respectively on rhetoric in accounting standard-setting, and
accounting reforms and policy processes, the studies that recognize
policy implications are very few.

Figure 8, Type of implications by cluster

Cl1 Cl2 Cl3

.2 .4 .6 .8
0

Cl4 Cl5 Cl6

.2 .4 .6 .8
0

Cl7
.2 .4 .6 .8
0

Research implications Practice implications

Policy implications Educational implications

5. Future research on rhetoric in accounting

After presenting insights and critiques to address the first two
research questions of this SLR, in this section we argue critical
reflections about future research in accounting concerning
investigation of rhetoric for promoting innovations. Thus, we provide
answer at the third research question to address the last step of the
SLR (Step 10).

5.1 Reflections for future research on rhetoric in accounting

The picture emerging from the results of analysis shows that the
literature we examined suffers from inconsistency in the research

176
methods and theoretical and conceptual frameworks underlying the
articles. The dominant methodologies for investigating rhetorical
strategies consist of discursive and linguistic methods, which are
focused on the analysis of particular aspects and characteristics of a
discourse, communication or textual material (e.g., rhetorical analysis,
discourse analysis, semiotic analysis, etc). Nevertheless, several
type of these methods are employed in the articles to investigate
rhetoric. Additionally, this lack of consistency can be observed also
within each single clusters. Apart from cluster Cl3 in which
rhetorical analysis is the major methods, there is not a particular
discursive method that prevails in each of them.
We also find that rhetorical analysis is the most suitable method for
analysing rhetorical appeals and strategies of persuasion in a
discourse, because, it is a critical reading of writings or speeches
involving a deeper analysis of a broad set of rules and characteristics
of communication, used to persuade an audience (Leach, 2000; Selzer,
2003). Thus, compared for example to a meaning-oriented content
analysis, it does not focus merely on what it is said in a discourse,
but it also takes into account who are the issuers of a discourse;
how the issuer of discourse communicates the message to specific
categories of audience; and when in the discourse certain rhetorical
devices are employed.
Nevertheless, rhetorical analysis is used in just three of the articles
in accounting in cluster Cl4 (Hoffmann and Zlch, 2014; Masocha
and Weetman, 2007; Nrreklit, 2003), while other six articles employ
meaning-oriented analysis, such as, content analysis (Hayne and Free,
2014; Hoffmann and Zlch, 2014; Jupe, 2000; Street et al., 1997) and
deconstructive analysis (Baker, 2005; Chabrak, 2012). For example
Jupe (2000, p. 339), investigates the phenomenon of lobbying in
standard-setting and examines the formal responses to an exposure
draft by employing content analysis to the rhetoric they used in
submissions. Additionally, he justifies the choice to employ such an
analysis as follows (Jupe, 2000, p. 337):
Others have noted that the content of submissions is important
and so have applied content analysis to the comments of respondents
(see, for example, Puro, 1984; MacArthur, 1988; Tutticci et al.,
1994).

177
 Analysing specific contents and topics that characterize a standard-
setting process is undoubtedly interesting and useful, but a mere
content analysis cannot alone detect and analyse rhetoric and
persuasion. However, as Hoffmann and Zlch (2014) show, content
analysis can be usefully employed together with rhetorical analysis to
capture some specific themes in the text investigated. Therefore,
accounting scholars today needs a new methodological approach for
investigating rhetoric in standard-setting. Similarly, two decades ago
Fogarty et al. (1994, pp. 4041) argued as follows:
The texts produced by the standard-setting process (e.g. exposure
drafts, final standards, advocacy letters, etc.) require greater
examinations in the traditions of rhetorical analysis. The research
which has been done to date by conducting primitive counts and
classifications, raises more questions than it answers and has not
even exhausted the capabilities of what must be the first step in
content analysis. Finally, more idiographic sensitivity to the meaning
of texts will provide accounting researchers with the opportunity to
pursue extensive and valuable avenues of research.
Also, a lack of consistency in the frameworks and epistemological
approaches characterizes the research on rhetoric in this literature.
This inconsistency affects negatively the comparability of the findings
of rhetorical studies. Since a specific framework represents a mean
through which rhetorical essays (e.g., the Aristotelian scheme, Ethos,
Pathos and Logos) are framed, collected and analysed in a discourse,
employing several frameworks creates different interpretations on
rhetorical proofs and related findings. Furthermore, we show that this
inconsistency occurs also within each cluster.
Nevertheless, in the last 10 years, an improvement in the
consistency of frameworks has occurred in only two clusters. The
affirmation of two dominant frameworks for investigating rhetoric,
the Aristotelian in cluster Cl1 and the social constructivist approach
in cluster Cl5, occurred in this period. Hence, considering the
importance of these two types of research, we assert that the research
on rhetoric in these two research paths reached a fair maturity in the
last years.
Instead, an inconsistency occurs in the accounting research
(clusters Cl4 and Cl6) because several types of frameworks are

178
employed in the articles, 8 in cluster Cl4, and 6 in cluster Cl6.
Furthermore, although cluster Cl4 represents the most developed
research theme about rhetoric in accounting, three of the articles use
no specific framework (Collett et al., 2001; Edward Arrington and
Schweiker, 1992; Street et al., 1997); and two common frameworks
are employed in just two studies, the Aristotelian framework
(Masocha and Weetman, 2007; Nrreklit, 2003) and structuralist
approaches (Chabrak, 2012; Thompson, 1991). Therefore, research on
rhetoric in accounting need to be developed by employing a consistent
framework to frame, collect and analyse rhetorical appeals of standard
setters and regulators.
Last, even if the investigation of rhetoric of policy-makers and
regulators are mainly addressed by rhetorical studies in accounting,
they fail to properly recognize the implications of their study for the
policy and regulation process investigated. Only three articles
recognize and explain the policy implications of rhetorical analysis
in accounting standard-setting (Collett et al., 2001; Fogarty et al.,
1994; Masocha and Weetman, 2007). Additionally, after more than
twenty years, examining rhetoric in accounting standards has little
impact on scholars because these articles receive few citations (CPY
3.7).
In summary, we conclude that the investigation of rhetoric in
standard-setting process is the main research path examining rhetoric
in accounting since 1994. Fogarty et al. (1994) assert that a standard-
setting process can be fully understood if its political nature is
recognized and accepted. Accordingly, the study of rhetoric allows us
to understand how the ideology manifests and is constructed in a
political process through the language of persuasion (Fogarty et al.,
1994, p. 30).
We conclude that the investigation of rhetoric in the process of
standard-setting needs to be more encouraged and developed in
accounting, especially in the current international context, in which
the business of standards setting (Gross and Knigsgruber, 2012, p.
185) is more and more characterised by a proliferation and
overproduction of standards, guidelines and frameworks for regulating
accounting practice. However, based on the results of this literature
review, future accounting research on this topic need to:

179
 Employ research methods and analysis allowing to investigate not
only what standard setters and other parties involved in the
process say, but also how this is said, by analysing a broad set of
characteristics and rhetorical proofs of their communication,
Use a consistent framework to frame, collect and analyse rhetorical
strategies and persuasion appeals in the process of standard-setting,
Take more into account and address the implications these
rhetorical studies can have for these policy processes and policy-
makers.

5.2 Limitations of the study and future research

This literature review suffers from an important limitation that is
related to the sources and the type of studies we selected. Since we
focused on the articles published in the major journals related to the
accounting and management fields according to the rankings provided
by Google Scholar metrics, books and other articles published in
journals with a lower H5-index were not considered in this study.
However, by focusing on these top journals, our aim was to focus on
the most influential studies examining rhetoric of innovations, and so,
analyse how this kind of research have been developed over time in
the most influential literature in accounting and management.
However, considering the research paths we discovered in this study,
future literature reviews might focus on more specific research topics
(e.g., rhetoric in accounting standard-setting, rhetoric in
organizational studies, rhetoric for promote management ideas, etc),
to allow to both narrow the research field under investigation, and
consider a broader set of sources.
Finally, both the aim of this study above and the large pool of
sources (157 major journals) considered for the literature search can
support the external validity of the SLR results. However, these latter
can be generalized only for the period under investigation, until the
time of the analysis.

180
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189
 GOODWILL WRITE-OFF AND STRATEGIC
CHANGE
Velia G. Cenciarelli, Silvia Ferramosca, Giulio Greco1
Department of Economics and Management University of Pisa
Pisa Italy

ABSTRACT
Using the resource-based view of the firm, we investigate the relationship
between goodwill write-off and strategic change. We hypothesize that these
decisions are simultaneously taken and that the goodwill write-off accounting
choice is part of a broader assessment of the corporate strategy. Using a sample of
US public firms, we find that the goodwill write-off is simultaneous with the firm
strategic change operationalized as strategic variation, measured as deviation from
the firm prior resources allocation pattern, and as strategic deviation, measured as
deviation from the average strategic profile of its competitors in the same industry.
To the best of our knowledge this is the first paper to undertake this research. This
paper can contribute to the resources-based theory studies, with evidence on how
managers assess intangible resources exhaustion and on how managers make
decisions, such as switching to alternative or search for new resources. Our paper
also contributes to the goodwill accounting literature. Our results support the US
Financial Accounting Standard Boards idea that goodwill accounting discloses to
the outside the managements private information about the firm future perspectives.

1. Introduction
Mandatory goodwill accounting requires the managers to annually
assess the firm intangible resources recognized as goodwill. The
exhaustion of the goodwill benefits implies undertaking a goodwill
write-off, resulting in lower asset value and loss in the income
statement. Accounting standards requires the goodwill write-off be
measured basing on the future cash flows estimated in the business
plans. Hence, this key financial reporting decision is strictly
interconnected with the managements strategy. On the one hand, the

1
Corrisponding author giulio.greco@unipi.it
goodwill annual impairment test is an opportunity for the managers to
routinely assess the bundle of intangible resources, referred to as
goodwill. The exhaustion of the goodwill benefits may trigger a
strategic change to avoid future lower performance and dwindling
firm market values. On the other hand, since the goodwill write-off is
measured basing on the managements business plans, the
managements strategy affects the decision to undertake a write-off.
In this paper, basing on the resource-based theory of the firm, we
investigate the relationship between the goodwill write-off and the
firm strategic change.
Previous research, before the introduction of the impairment test,
suggest that the amortization period of goodwill may be predictive of
the success of an acquisition in terms of both earnings changes and
future stock prices, conveying to investors information on
managements expectations deriving from the combination synergies,
eventually signalling the firms strategies (Henning and Shaw, 2003).
Nonetheless, to the best of our knowledge, there is no prior study
investigating whether the managers engage in strategic changes as a
response to the loss of value in the firm goodwill. Or whether the
strategic change leads the management to accurately review the value
of the goodwill for ensuing impairments. We attempt to fill this
research gap in both the management and accounting literature.
To examine the relationship between goodwill write-off and
strategic change we use a panel of 10.321 firm-year observations of
US firms in the period 2003-2007. Our sample companies apply the
US generally accepted accounting principles (GAAP). We
operationalize strategic change as strategic variation, measured as
deviation from the firm prior resources allocation pattern, and as
strategic deviation, measured as deviation from the average strategic
profile of its competitors in the same industry.
The expected correlation between the explanatory variables to the
disturbance terms motivates the treatment of strategic variation and
strategic deviation as endogenous. To obtain unbiased and consistent
parameters estimation, we use a simultaneous equation panel data
model using the estimator proposed by Baltagi (EC2SLS). The US
GDP growth and Standard & Poor US Global Equity Index are used
as instruments.

192
 Our empirical results show that goodwill write-off and strategic
variation are simultaneous. Both may be driven by firm-specific
events (i.e. external shocks such as disasters, post-acquisition
inefficiencies instead of synergies). These events cause immediate
reactions at both a strategic and a financial reporting level. Our
empirical results also show that the firm strategic deviation from the
competitors profile is undertaken either in the same year of the
goodwill write-off or in the prior year. This finding may suggest that
such decisions are driven by industry-related events (i.e. changes in
the consumer preferences, technological obsolescence of the
products). In this case, managers are likely to carefully assess the
write-off financial reporting implications. Managers may prefer
disclosing a goodwill write-off along with already undertaken new
strategic actions to display preparedness.
This paper can contribute to the resources-based theory studies.
Firstly, we provide evidence on how managers assess resources
shortage and on how managers make decisions, such as switching to
alternative or search for new resources. Namely, managers use the
mandatory goodwill annual impairment test to assess their set of
intangible resources. Secondly, we provide evidence on the methods
used: managers use the DCF methods to assess how the goodwill
benefits influence the firm performance.
Our paper also contribute to prior management literature, by
showing that key accounting decisions, such as the goodwill write-off,
can be part of a broader assessment of the corporate investment
policy. Included in the corporate policy is the financial reporting
policy.
Finally, our paper also contributes to the goodwill accounting
literature. The findings highlight that earnings management is not the
primary driver of the goodwill write-off, as argued by several studies.
By contrast, our results support the US Financial Accounting Standard
Boards idea that goodwill accounting discloses to the outside the
managements private information about the firm future perspectives.
The remainder of the paper is organized as follows. Section 2
reports the ratio underlying and the requirements mandated by the US
GAAP for accounting for goodwill, hinting to the link between
accounting for goodwill and the strategy of the firm. Section 3

193
provides the theoretical background of the study and the hypotheses
development. Section 4 defines our research design including the
sample selection, the measurements of the variables used to test the
hypotheses and the model. In section 5 we display the research results
and in section 6 we include the discussions and conclusions.

2. Goodwill accounting under the US accounting standards

Under the US generally accepted accounting principles the
goodwill is recognized after a business combination and usually
includes intangibles like i.e. customer relationships, market position,
employee skills and motivation, firm reputation (Seetharaman et al.,
2004). These intangible resources cannot be recognized separately as
assets in the financial statements and are thus bundled in a single
accounting item. These intangible resources are collectively
recognized because they result in future economic benefits. In other
words, these resources ensure an extra (or a surplus of) current and
future performance.
Each year the goodwill is subject to an impairment test to check for
possible losses of value. The check is made between annual tests
under certain circumstances, which may be indicator of impaired
goodwill. Examples from the SFAS 142 are: a significant adverse
change in legal factors or in the business climate; an adverse action or
assessment by a regulator; unanticipated competition; a loss of key
personnel.
Under the US generally accepted accounting principles, the
goodwill is written-off when its current book value is lower than the
net present value of the future cash flows obtainable by the firm,
according to the managements business plans and forecasts. This can
happen for several reasons, e.g. the benefits of prior acquisitions on
the firm profitability in the future are depleting, the expected
synergies from prior acquisitions are no longer profitable; there are
changes in the consumers behaviour or technological obsolescence of
products affecting the business which affect the intangibles
recognized in the goodwill. The goodwill write-off accounting warns
external parties, such as investors, lenders, and employees, about
possible poor future performance and dwindling firm market value.

194
 To the best of our knowledge, there is no prior study investigating
the relationship between goodwill write-off and strategic change. We
attempt to fill this research gap in the management literature.

3. Theoretical background and hypotheses development

The bundle of intangibles resources recognized as goodwill is a
relevant source of competitive advantage of the firm. In the resource-
based theory view, the goodwill might be seen as an agglomerate
explicative of the strategy and future benefits (or advantages) that the
management expects from it. The resource-based theory suggests that
firms value changes in relation to the distinctive resources,
competences, know-hows, experiences and other intangibles, which
may be all comprised in the concept of goodwill, controlled by the
same firms (Barney 1991; Warnerfelt 1984; Barney et al. 2001).
Several authors highlight the strategic implications in terms of
competitive advantage in the proper exploitation of the intangible
resources (Kristandl and Bontis, 2007). Goodwill is a strategic
resource given its low imitability, low substitutability, non-tradability
(Wade and Hulland, 2004). As a matter of fact, the resource
goodwill cannot be reproduced nor acquired by other entities
because it is made up by an amass of unidentifiable intangible assets,
which render it ambiguous and complex, and because it is not
separable from the entity as a whole. The origin, life and exhaustion
of goodwill are all tied to exclusive conditions, which affect and are
affected by the management strategic plan. It originates from a
business combination, which is unique and unrepeatable. It is fostered
by the efficient coordination of the firms resources, creating
inimitable synergies amongst tangible assets, intangibles and human
capital (Reed and DeFillippi, 1990; Sirmon et al., 2007). Finally, the
goodwill erodes when the above strategic and positive combination of
resources do not persist. As required by SFAS 142 the goodwill is
written-off when its current book value is lower than the net present
value of the future cash flows obtainable by the firm, according to the
managements business plans and forecasts. This can happen for
several reasons, e.g. the benefits of prior acquisitions on the firm
profitability in the future are depleting, the expected synergies from

195
prior acquisitions are no longer profitable; there are changes in the
consumers behaviour or technological obsolescence of products
affecting the business which wear out the intangibles recognized in
the goodwill. The goodwill write-off accounting warns external
parties, such as investors, lenders, and employees, about possible poor
future performance and dwindling firm market value.
A large body of the literature find evidence that the impairment
regime better reflect the underlying attributes of goodwill than the
systematic amortization approach (Godfrey and Koh, 2009; Chalmers
et al. 2011). Specifically, firms with higher investment opportunities
(IOS) reflect the economic value of goodwill maintaining high its
value, while firms with lower IOS reduces the amount of goodwill
through write-offs.
Prior studies also suggest that IOS variation is a potential
explanation for differences in corporate policies, including accounting
choices (Smith and Watts, 1992; Bradbury et al. 2003). The IOS are
largely made up by the real options with values dependent upon future
discretionary investments and the firm strategy between others define
the firms portfolio of options (Myers, 1977; 1984). Specifically,
Myers (1984) maintains that strategic planning is many things, but it
surely includes the process of deciding how to commit the firm's
resources across lines of business. From these words we derive the
close interconnections between investment opportunities and the
strategic plan of the firm and in line with prior research we suggest
that the variation in the firm strategy is reflected in the managerial
impairment decision.
To summarize our study follows the following reasoning.
According to the resource-based theory perspective, the exhaustion of
the goodwill benefits implies undertaking a goodwill write-off,
resulting in lower asset value and loss in the income statement.
Accounting standards requires the goodwill write-off be measured
basing on the future cash flows estimated in the business plans.
Hence, this key financial reporting decision is strictly interconnected
with the managements strategy. On the one hand, the goodwill annual
impairment test is an opportunity for the managers to routinely assess
the bundle of intangible resources, referred to as goodwill. The
exhaustion of the goodwill benefits may trigger a strategic change to

196
avoid future lower performance and dwindling firm market values. On
the other hand, since the goodwill write-off is measured basing on the
managements business plans, the managements strategy affects the
decision to undertake a write-off.
We expect a simultaneous relation between impairment of
goodwill and the change in the firm strategy. In other words, we
assume both that the managers react to the exhaustion of the goodwill
benefits undertaking changes in the firm strategy and also that a
change in the firm strategy prompts a goodwill impairment.

Hp 1. Ceteris paribus, the goodwill write-off is positively associated

with the strategic change.
Hp 2. Ceteris paribus, the strategic change is positively associated
with the goodwill write off.

4. Research methodology
4.1 Sample
To examine the relationship between goodwill write-off and
strategic change we use the population of US public firms in the
period 2003-2007. We downloaded the data and focused on the firm
having goodwill (more than 90% of Compustat population). Our panel
is composed of 10.321 firm-year observations (3905 individual firms).
US firms have applied the US SFAS 142 since 2002; however, we
omitted the transition year, 2002, as it includes transitory
extraordinary write-offs. Also, in that year there was the possibility to
disclose the goodwill write-off as extraordinary item in the income
statement not affecting the operating performance. This possibility
may create significant earnings management incentives, disturbing the
interaction between strategic change and goodwill write-off (Beatty
and Weber, 2004). After the 2003, the SFAS requires the write-off
presented as operating cost. In the period 2003-2007, there is no
economic downturn affecting all the firms. The US setting is well
suited to this type of research and is not different from that of many
other countries. The US GAAP have accounting rules similar to the
IAS/IFRS, used in more than 130 Countries worldwide, including e.g.

197
European Union countries, Brazil, Colombia, South Africa, Taiwan,
South Korea, Australia.

4.2 Regression model

We regress the goodwill write-off (on total assets) on two
independent variables widely used in prior research to measure
strategic change: strategic deviation and strategic deviation
(Finkelstein & Hambrick, 1990; Carpenter, 2000; Zhang &
Rajagopalan, 2004; Karaevli et al., 2010). By construction, the
independent variables incorporate industry and year fixed effects.
Hence, we set our panel by observation and year and test whether
there are also firm fixed effects. With this empirical research design,
we take into account the possibility of multidimensional fixed effects
(Gormley and Matsa, 2013). We use a set of standard controls in the
goodwill write-off literature (Riedl, 2004).

Model 1
GWO = SV + SD + LEV + MTB + ROE + SIZE
Where: GWO= goodwill write-off on total assets; SV= strategic
variation; SD = strategic deviation; LEV= leverage, as financial debt
on total assets MTB = market-to-book value; ROE= return on equity.

To solve endogeneity, we run a simultaneous equation panel data

model using the estimator proposed by Baltagi (EC2SLS). In the first
stage we regress SD and SV on the control variables and on two
instrumental variables: the US yearly gross-domestic product growth
and the Standard&Poors US global equity index. These variables are
likely to influence the overall managements strategic thinking, but
not specifically the choice to write-off the goodwill.
Models similar to the one used in this study have been already
presented in other financial accounting studies. For example, Hossain
et al. 2005 examine the effect of the investment opportunity set (IOS)
on disclosure using a simultaneous system of equations to take into
account the endogenous relationship between the IOS and disclosures.
We run a Hausman test to compare fixed effects and random
effects at a firm level. The Hausman test signalled that random effects

198
are best suitable for our research. As abovementioned, industry fixed
effects are incorporated in the strategic change measures.

4.3 Strategic change measurement

We use composite measure of strategic changes. Strategic variation
is the variation over time in the firms pattern of resources allocation.
Strategic deviation is the is the degree to which a firms strategy
deviates from the average strategic profile of its competitors in the
same industry.
We used six strategic indicators used by prior research (Carpenter,
2000; Finkelstein and Hambrick, 1990; Karaevli, 2007; Zhang, 2006;
Zhang and Rajagopalan, 2004, 2010) to create composite measures of
strategic changes. These indicators are advertising intensity
(advertising/sales), research and development inten- sity (R&D/sales),
plant and equipment newness (net P&E/gross P&E), non-production
overhead (SGA expenses/sales), inventory levels (inventories/sales),
and financial lever- age (debt/equity). Each indicator focuses on a
relevant and specific dimension of a firms strategic profile, which is
potentially controllable by managers (Karaevli et al, 2010).
Treating t as the goodwill write-off year, the i-th firms four-year
(for t 1 through t + 2) variance for each strategic dimension was
computed. Variance scores for each dimension were standardized by
industry. We obtained six standardized variance indicators and we
summed them to obtain SV. Treating t as the goodwill write-off year,
we follow Karaevli et al., (2010) and define SD as the sum of the
absolute values of the industry adjusted strategy indicators averaged
over the three year-period, from the succession year (t) through the
third year after (t + 2). We used the same six indicators used for SV.

5. Empirical findings
Table 1 reports the second stage of our panel regression. The
findings show that the strategic variation (SV) has a positive highly
significant correlation with the goodwill write-off (GWO). The
coefficient is significant at the 1% level. The strategic deviation has a
higher coefficient and an even more significant association (p-value
<0.01). These findings support HP1.

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 Table 1

Dependent variable: GWO

Number of obs = 10321
Number of groups = 3905
Wald chi2(6) = 913.56
Prob > chi2 = 0.0000

------------------------------------------------------------------------------
| Coef. Std. Err. z P>|z| [95% Conf. Interval]
-------------+----------------------------------------------------------------
SV | .0249457 .0090969 2.74 0.006 .0071161 .0427753
SD | .0297763 .0081198 3.67 0.000 .0138619 .0456908
SIZE | .0005833 .0013398 0.44 0.663 -.0020426 .0032091
LEV | .0194908 .0027927 6.98 0.000 .0140171 .0249645
MTB | -.0000292 9.56e-06 -3.05 0.002 -.0000479 -.0000104
ROE | -7.04e-07 2.37e-07 -2.97 0.003 -1.17e-06 -2.39e-07
_cons | -.0317416 .0101538 -3.13 0.002 -.0516427 -.0118404
-------------+----------------------------------------------------------------

Our empirical results show that goodwill write-off and strategic

variation are simultaneous. Both may be driven by firm-specific
events, which cause reactions at both a strategic and a financial
reporting level by managers. Examples of such eventa are post-
acquisition inefficiencies instead of synergies or external shocks such
as environmental disasters.
Further investigations, also show that the firm strategic deviation
from the competitors profile is undertaken either in the same year of
the goodwill write-off or in the prior year. This finding may suggest
that such decisions are driven by industry-related events, such as
changes in the consumer preferences or technological obsolescence of
the products. In this case, managers could delay the write-off
reporting it along with already undertaken new strategic actions to
display preparedness. An alternative explanation is that take more
time to measure the impact of long-term changes on the goodwill
value and on the firm prospective performance.

6. Discussion and conclusion

Our empirical findings demonstrate that goodwill write-offs and
strategic change are simultaneously determined. As predicted,
goodwill write-off is positively associated with the firms strategic
change and vice versa.

200
 Our paper can contribute to the resources-based theory studies. The
goodwill write-off may provide a tool for the managers to assess
intangible resources exhaustion and shortage. Managers may use the
goodwill write-off procedure as a basis for undertaking decisions to
switch to other resources. Managers use the DCF methods to assess
how the goodwill benefits influence the firm performance; if the extra
performance lowers or disappear then the intangible resources
bundled in the goodwill lose value.
Our paper also contribute to prior management literature, by
showing that key accounting decisions, such as the goodwill write-off,
can be part of a broader assessment of the corporate investment
policy. Included in the corporate policy is the accounting and financial
reporting policy.
Finally, our paper also contributes to the goodwill accounting
literature. The findings support the US Financial Accounting Standard
Boards idea that goodwill accounting discloses to the outside the
managements private information about the firm future perspectives
and is not used for earnings management.
Our study acknowledges some limitations. In our paper, we do not
control for earnings management incentives. However, the goodwill
write-off accrual cannot be reversed unlike other accruals (i.e.
working capital). Hence managers are likely to prefer other accruals to
manage the current earnings.
Future research could investigate whether the CEO change or the
CEO background moderate and influence the relationship between
goodwill write-off and strategic change.

201
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203
 IS THE CASH HOLDING INFLUENCED BY
CORPORATE REPUTATION IN THE BANKING
INDUSTRY? PRIMARY EVIDENCE

Adriana Bruno
University of Salerno
Salerno Italy

Nadia Cipullo
Link Campus University
Roma Italy

Rosa Lombardi1,
Link Campus University
Roma Italy

Rosa Vinciguerra
Second University of Naples
Naples Italy

ABSTRACT
Reputation and trust promote better and long-run relations among different
groups. As the relation between the bank and its customers/stakeholders generates a
network, in this paper we want to assess, using the Network Analysis instrument, if
there is a connection between a bank reputation and its liquidity level, in terms of its
Cash Holding trends. The main purpose of the study is to integrate the existing
literature with a new Index of General Reputation (IGR), that brings together the
strengths of the qualitative and of the quantitative models, through the adoption of
the Network Analysis as a score rating system. This is a first exploratory research. In
the future, we will extend the study to other liquid items of the financial statements,
in terms of high quality liquid assets (according to the BCBS definition) and to the
funding side of the balance sheet.

Keywords: corporate reputation, banking industry, Network Analysis, risk,

liquidity, Cash Holding.

1
Corrisponding author r.lombardi@unilink.it
 1. Introduction
In 2007 the world economy has been rocked by a huge financial
crisis, which has been unleashed by a liquidity crisis in the banking
system of the United States (subprime mortgage problem). This
financial crisis, then turned into the economic crisis, is still
considered as the main cause of the damage of the main European
countries economies. Indeed, many analysts have described it as the
worst global crisis since the Great Depression of 30s. The biggest
Banks, that were thought to be 'too big to fail', collapsed or were
saved by extraordinary intervention by Public Government. People
have increasingly shown an obvious suspicion towards "the banks
world" seen as the main actors of this crisis. In the collapse of the
interbank system, it has been evident the lack of liquidity, due to the
lack of confidence of banks in lending money each others.
In this historical moment the reputation of any company,
particularly of a bank, is under the eye of the storm. The second
pillar of Basel II (2004) detects the importance of managing the
reputational risk. Over the years, integrations, modifications,
reviews made on this document, have showed the more and more
attention by scholars and practitioners on this type of risk.
The aim of this research is to try to build a quantitative
reputational index, obtained by observation of phenomena
considered important for the objective: the Cash Holding trends.
This index is not an end in itself, but should be inserted into a more
complex research in which a model of corporate reputation is under
construction, by filling the literature gap.
Clearly, a complete work of this type is extremely complex,
considering the choice of variables, the data acquisition and their
elaboration. So this is a first exploratory study. But it is important to
mention that, after some research, there seems to be a very close link
between the customers behavior, in terms of opening and closing
accounts, the Cash Holding and the reputation of banks. Certainly
the work cannot be considered concluded at this level, and we are
assessing how to extend the study.
The article has the following structure: after the introduction,
section two provides methodology. Section three proposes the

206
literature review. Section four proposes conclusions, limitations and
suggestions for further research.

2. Methodology
Starting from the overlapping between the banking theory
(Bhattacharaya, Thakor, 1993) and the knowledge-based theory of the
firm (Grant, 1996), the research aims at the recognition of a literature
gap: the investigation of the correlation between corporate reputation
and Cash Holding of Banks (figure 1).
Figure 1 Overlapping Research Area

Relationship between
CorporateReputation
and Cash Holding

Source: our elaboration

The mixed method implies the adoption of quali-quantitative

methodologies with an exploratory approach (Hair et al., 2003), as the
objective is to provide both the scientific community and business
operators with a greater understanding of the influence of corporate
reputation on Cash Holding in the bank field.
Data collection is based on the multi-method approach, including
secondary sources. In this direction, this analysis aims at integrating
and updating existing literature, by providing a model for the
evaluation of reputation and empirical evidence coming from the
analysis of the Banks listed on the Italian Stock Exchange (table 1).

207
 Table 1 Italian Banks from Italian Stock Exchange
1 Banca Carige 17 Banco di Sardegna Rsp
2 Banca Carige Rsp 18 Banco Popolare
3 Banca Finnat 19 Banco Santander
4 Banca Generali 20 BNP Paribas
5 Banca IFIS 21 Credit Agricole
6 Banca Intermobiliare 22 Credito Emiliano
7 Banca Monte Paschi Siena 23 Credito Valtellinese
8 Banca Monte Paschi Siena Aa 24 Deutsche Bank
9 Banca Popolare dellEmilia Romagna 25 Finecobank
10 Banca Popolare Etruria e Lazio 26 Intesa Sanpaolo
11 Banca Popolare di Milano 27 Intesa Sanpaolo Rsp
12 Banca Popolare di Sondrio 28 Mediobanca
13 Banca Popolare di Spoleto 29 Mediolanum
14 Banca Profilo 30 Societe generale SA
15 Banco Di Desio E Brianza 31 Ubi Banca
16 Banco Di Desio E Brianza Rsp 32 Unicredit
33 Unicredit Rsp

The research protocol is developed through two steps over the time:
- Step A) Proposition of the theoretical background, including the
construction of a conceptual model for the determination of a new
Index of General Reputation (IGR);
- Step B) Analysis of banks listed on the Italian Stock Exchange,
applying the above model, composed of internal and external
surveys, indicators of Network Analysis and of a General
Reputation Index that is the starting point for the comparison with
the bank Cash Holding. In order to do so, we will refer to
information contained in the Investor Relation sections of banks
sites and on their Cash Holdings.
At this stage, the application of such protocol is limited to the step
A). Activities related to step B) will start after the first one and will
require the following activities:
- searching of Investor Relation sections;
- screening and selection of significant documents and parts from the
Investor Relation sections;
- analysis and elaboration of data through the application of the
conceptual model;
- interpretation of results.

208
 For the construction of the step A), data sourcing has been carried
out using secondary sources originated from analysis of documents,
reports, news articles, journal articles in open sources, websites,
databases and scientific documents (Yin, 2003; Myers, 2013).

3. Literature Review
3.1 The banking system
Investigation of relations between the reputational profile of a
bank and its level of liquidity can not be separated from the
description of the banking system in which it operates.
As pointed out by Bhattacharaya and Thakor (1993) and Rajan
(1992), a financial system, indeed, can be marked by free
competition behavior, as in the case of an arm's length financing
system (prevalent in the Anglo-Saxon Countries) or based on
relational mechanisms, as in the case of a relationship-based system,
typical of the Continental European Countries (Boot, 2000).
The main differences between the two systems fall into three
principal perspectives (Rajan, Zingales, 1998):

1. level of integration between funders and funded.

In the relationship-based system, in order to ensure an adequate
return to the lender, he is allowed to exercise some form of power
or of control over the funded company.
Relations between parties become very narrow, and lead to a
system characterized by opacity, making difficult the access from
new players;
2. level of reliance on the enforcement.
Among actors are established very strong relationships. Therefore
the relationship-based system can survive even in a context of
weak enforcement.
In fact, even in the absence of contractual agreements, as parties
are interested in maintaining long-term relationships and their
reputation, they are incentivized to honor the established deals;
3. role given to transparency.
The system is based on opacity, which protects relations from the
threat of competition.

209
 Given the characteristics of the relationship-lending system, we are
inclined to believe that the reputation is particularly relevant. So, in a
banking system like the Italian one, it is plausible that the reputational
profile of a bank can have an effect on its liquidity.
Moreover, the relational mechanism can operate on a dual
perspective:
1. from the side of collection of liquid resources (usually are
deposits);
2. from the side of the type of investments in which the Bank invests
(in a relationship-lending system there is the risk of banks holding
illiquid or nonmarketable assets).

3.2 Reputational risk in a bank

Following the resource based view and the revisitation of the
theory of firm (Grant, 1991; Penrose, 1959; Wernerfelt, 1984), the
work of Grant (1996) investigated the knowledge perspective by
emphasizing its role in renovate traditional organizational structure
and management. In this direction, the relevance of intangible assets
for contemporary firms is showed especially in value creation. An
effective management of all risks affecting the banking activity, even
the reputational one, could increase the value perceived by the banks
stakeholders (Schroeck, 2002).
Reputation has been defined in different ways by scholars
(Bromley, 1993; Rayner, 2003; Fombrun, Van Riel, 1997; Fombrun,
Rindova, 1994). It is included in the intellectual capital as dimension
of relational capital; it is the experiences company less the
expectations of its stakeholders (Harpur, 2002). Reputation can be
defined as the company identity or position in reputational rankings
(Elsbach, Kramer, 1996), as the external image of contemporary
company (Martins, 2005) or its credibility. Rayner (2003) discussed
risk to reputation by identifying drivers and sources of reputation
risk: financial performance and long-term investment value,
corporate governance and leadership, corporate social responsibility,
workplace talent and culture, delivering customer promise,
regulatory compliance, communications and crisis management. So,
reputational risk has to be identified, assessed and managed
(Gaultier-Gaillard et al., 2009) in order to defense reputation and

210
company performance. Reputation involves gains or losses,
sometimes it could even be seen as the risk of loss of earnings. As a
consequence, ideas or definition are not enough, but it is necessary
to "quantify it" in order to make it more useful.
Recently many scholars are developing new studies aimed at
obtaining reputation measurements, or reputation indexes (Ponzi et al.,
2011). Monitoring the reputation level means to know when and how it
lowers or raises. In this way, it is possible to predict the future and
outline strategies to mitigate lost. This is the ambitious goal of research
in this area, especially in the banks world. One of the main objects of
the study is the choice of variables able to detect a reputational index: it
is essential to understand what data better explain the phenomenon,
being able to extract the most information to measure variations in the
level of reputation perceived by stakeholders.
In the literature it is possible to find qualitative and quantitative
approaches in measuring reputational risk. Among qualitative
criteria, in particular, there are:
1. Reputation Quotient (RQ) (Fombrun, 2005);
2. Reputational Index (Cravens et al., 2003);
3. RepTrack (Reputation Institute).
The Reputation Quotient is based on the stakeholders perception
about 6 variables, collected by interviews: emotional appeal;
evaluation of products and services; work environment; financial
performance; leadership; social responsibility.
At the same way, the Reputational Index is based on the
stakeholders perception about leadership, organizational behavior,
innovation and corporate strategy.
The Rep Track measures the overall reputation considering the
esteem, respect, good sensations, the trust and admiration that
stakeholders feel for the 600 largest companies. It is built thanks to
60,000 online interviews conducted on consumers around the world.
It is based on 6 pillars, more or less similar to the Reputation
Quotient: leadership; products and services quality; innovation; work
environment; good governance; good citizenship (respect for the city
environment); financial performance. The common feature of these
indexes is that they are marketing based.

211
 On the other side, among the quantitative criteria, in particular,
there are:
1. Intellectual Capital Approach;
2. Accounting Approach;
3. Event study.
The Intellectual Capital Approach is based on trademarks value;
service marks value; copyrights value; permits value; exclusive
license value. The methodology is to identify costs associated with
these variables, according to contents of companies' financial
statements, and, from these, building a reputational value. The
limitation is that results depend on the accounting criteria adopted by
the company, which effect their book values.
The Accounting Approach is based on the assessment of
intangible assets of a company. This approach requires a comparison
between assets and liabilities values and the assessment of
reputation is based on the 'fair value' because it is considered as an
intangible asset. The result is named 'net reputation'. The limit is to
identify a unique and not discretionary method of the intangible
assets evaluation. As a consequence a comparison between results
obtained for several companies became not significant.
The Event Study is an econometric technique in which the
reputational loss is seen as a further deterioration of the stock value
of a listed company during days purely neighbors the announcement
of an operating loss. This method is useful in the separation of
operational loss from reputational loss. The limitation is that the
investigation of the reputational loss is related only to operating
losses; as a consequence, the reputation is not seen in its
multidimensional vision as described in Basel II (specified below).
Indeed, the reputational risk is considered from a negative
perspective: what matters is to assess reputational loss.
The common feature of these indexes is that they are based on the
history of the company and on its financial statements.
In literature these indexes are still "highly experimental" because
it has not yet been established a framework from which to choose
data or variables. However, in this research we will be located in this
stream.

212
 Table 2 - Measuring reputational risk

Qualitative Methods Quantitative Methods

Intellectual Capital
Reputation Quotient (RQ) based on the
Approach
history of the
Reputational Index marketing based Accounting Approach company and on its
financial
RepTrack Event study statements

Focusing on the bank industry the definition of reputational risk in

Basel II is this: 'Reputational risk can be defined as the risk arising
from negative perception on the part of customers, counterparties,
shareholders, investors or regulators that can adversely affect a
bank's ability to maintain existing, or establish new, business
relationships and continued access to sources of funding (e.g. through
the interbank or securitization markets). Reputational risk is
multidimensional and reflects then perception of other market
participants. Furthermore, it exists throughout the organization and
exposure to reputational risk is essentially a function of the adequacy
of the bank's internal risk management processes, as well as the
manner and efficiency with which management responds to external
influences on bank-related transactions' (Proposed enhancements to
the Basel II framework, Consultative Document, January 2009).
The risk of incurring losses due to deterioration in the perception of
the banks image by stakeholders is explicitly recalled in the new
framework of prudential supervision of Basel II, especially in the
Reputational Risk Management (RRM) section, focused on the
analysis and management of relationships with various stakeholders.
However, the reputational risk is primarily related to customers. As a
consequence, the reputational damage potentially more relevant to the
bank is the one stemming from deterioration in the perception of its
image among its customers. Considering the two sides, the customer
and the bank, we can summaries as follow:
- a good reputation based on external information (internet,
advertising) attracts customers, who decide to undertake a
collaborative relationship with a financial institution they consider
reliable; subsequently, a regular customer will base his perception

213
 on their own experience, by assessing the satisfaction about his
contract;
- on the other side, banks monitor their reputation basing on internal
data, such as the evolution of the number of accounts and the
number of customer complaints.
It is clear the asymmetry of information since customers will not
have access to such data. This is the starting point of this research.

3.3 Liquidity and liquidity risk

Liquidity is not an easy notion to define and does not have a
univocal meaning: both a stock dimension, interpreted as the
availability of cash or equivalents, as well as a dynamic one can be
referred to. According to the latter Liquidity represents the capacity
to fulfil all payment obligations as and when they fall due to their
full extent and in the currency required. Since it is done in cash,
liquidity relates to flows of cash only. Not being able to perform leads
to a condition of illiquidity (Duttweiler, 2009). Moreover, in a
broader way, the concept may also embrace the company growth
process, that is the ability to fund new business transactions; in this
case Liquidity can be viewed as the essential resource that permits a
company to replace its liabilities, meet contractual obligations, and
fund growth, all at reasonable price, as and where needed (Banks,
2014).
It should be emphasized that, as payments have to be executed
exactly when due, Liquidity has a specific characteristic: it has to be
always available on a daily basis and not on average; otherwise the
entity can be considered illiquid.
Moreover, Liquidity is positively related to financial flexibility: a
more liquid entity is more likely to have a superior ability to adapt to
unexpected needs and opportunities, as well as a lower risk of failure.
As a complex item (Matz, 2011), Liquidity can be investigated
through its components (Banks, 2014):
- Funding Liquidity: liabilities (both short and long term) from
which cash can be drawn;
- Asset Liquidity: availability of assets which can be sold or pledged
in order to obtain cash;

214
- Liquidity Contingencies: future events that can impact on cash
flows.
It is useful to provide a definition of Risk, that is the possibility of
incurring losses or reduced profits or something else disadvantageous.
Risk qualifies all business activities; indeed each entity, carrying out
its business, faces many types of risks. A rough distinction can be
made between operational risks (losses affecting the operating
activity) and financial risks (losses arising from financial variables
that impact balance sheet and off-balance sheet items). The latters are
(Banks, 2014):
- Market Risk: losses in on and off-balance sheet positions due to
adverse movements in market prices;
- Credit Risk: losses due to uncertainty in a counterpartys ability to
meet its financial obligations;
- Liquidity Risk: losses arising from a lack of cash or its equivalents,
as well as from the inability to obtain it (trough funding at an
economically reasonable levels or trough sell/pledge assets at
carrying prices), to meet expected and unexpected obligation.
Both Market and Credit Risk, leading to a cash-flow shortfall,
impact on Liquidity Risk.
Liquidity and Liquidity Risk are inversely related: the higher the
Liquidity Risk, the higher the probability of becoming illiquid and,
therefore, the lower the Liquidity (Nikolaou, 2009).
From the foregoing points it can be assumed that, in theory, if a
firm owns assets and liabilities well matched (in terms of duration)
and if it can hold them until their maturity, assuming the absence of
new transactions, it faces no Liquidity Risk: at these conditions,
maturing assets will provide funds needed to repay liabilities as they
come due. Such a model, however, is just an ideal and static one: it is
true only neglecting Liquidity Contingencies and impacts of future
scenarios.
Entities, especially financial institutions that operate the maturity
transformation, cannot satisfy the above-mentioned conditions;
moreover, they serve the accounting estimates and must deal with
unexpected events. As a consequence, Liquidity Risk is an exposure
that every firm must consider and manage.

215
 To this end, it is useful to clarify that as for Liquidity, also
Liquidity Risk consists of many components (Banks, 2014), each
influenced even by accounting rules:
- Asset Liquidity Risk: coming from the inability to convert assets
into cash at the expected value;
- Funding Liquidity Risk: arising from an inability to access
unsecured funding sources at an economically reasonable cost in
order to meet obligations;
- Joint Asset/Funding Liquidity Risk: when they jointly occur, they
will give rise to systemic Liquidity Risk, which can be seen as the
risk of drainage of Liquidity circulating in the whole financial
system;
- Liquidity Mismatches Risk: arises when maturities of assets and
liabilities do not match, leading to divergent cash inflows and
outflows over time and consequential losses;
- Liquidity Contingencies Risk: refers to losses resulting from
unexpected future events that may absorb Liquidity flows.
Considering the Liquidity Risk as a whole, in order to assess and to
manage it, entities usually adopt some ratios and margins. So, while in
the accounting literature Liquidity is seen as an intangible quality of a
firms financial position, the tangible version is calculated in terms of
net liquid assets. In fact:
- one traditional measure used in practice is the Liquidity Gap,
defined as the difference between volatile liabilities and liquid
assets (Culp, 2001);
- another instrument is the Funding Ratio, calculated as the sum of
available funding above n years divided by the sum of assets
maturing above the same period, useful to observe the structural
Liquidity Risk in a banks balance sheet (Matz, Neu, 2007);
- other ratios refer to cash inflows and outflows for a defined period,
usually a short one (Matz, Neu, 2007; Duttweiler, 2009);
- more recent metrics consider whether the entity is able to meet its
obligations over a short time period in a severe stress scenario
(Liquidity stress testing and scenario analysis).
Even Basel III (BCBS, 2013; BCBS 2010) introduced the Liquidity
Coverage Ratio (LCR), to evaluate short-term resilience of a banks

216
Liquidity Risk, and the Net Stable Funding Ratio (NSFR), to promote
resilience over a longer time horizon.
The LCR by means of a buffer (that should cover part of the
difference between a banks financial inflows and outflows in times of
stress), is intended to ensure that banks hold liquid assets of high
quality (HQLA) in order to withstand stressful situations for a time
horizon of thirty days. Assets are considered to be HQLA if they can
be easily and immediately converted into cash at little or no loss of
value. According to the Basel III requirements, HQLA should be at
least equal to the total net liquidity outflows over a 30-day time
period.
The NSFR aims to achieve, for the medium-term (over one year), a
structural balance of the bank financial statements and to promote the
use of stable sources of funding. The objective is to limit over-reliance
on short-term wholesale funding during times of buoyant market
liquidity and encourage better assessment of Liquidity Risk across all
on- and off-balance sheet items. In addition, the NSFR approach
offsets incentives for institutions to fund their stock of liquid assets
with short-term funds that mature just outside the 30-day horizon for
that standard. According to Basel III requirements, the NSFR is
defined as the available amount of stable funding to the required
stable funding. This ratio must be greater than 100%.

3.4 Measuring the impact of corporate reputation on cash

holding: a primary model
The existing models for the measurement of corporate reputation
(Bromley, 1993; Rayner, 2003; Fombrun, Van Riel, 1997; Fombrun,
Rindova, 1994) are based on different variables; they provide
indicators or properties of reputation. The last one is a relevant
dimension of intellectual capital, included in relational capital owned
by firm and banking firm.
Although several models of intellectual capital measurement exist
(Chiucchi et al., 2014; Dumay, 2009), starting from the previous
literature analysis (Cravens et al., 2003; Harris-Fombrun, 2005; Ponzi
et al., 2011) and by comparison of specific qualitative and quantitative
models, it is possible to propose an evaluation model with the aim to

217
create a set of indicators directed to the construction of a quantitative
reputational index (Index of General Reputation).
The analysis of the three qualitative methods for the assessment of
the reputational risk (Reputation Quotient of Harris-Fombrun,
Reputational Index, RepTrack) allows us to identify variables as the
recurring point for the construction of a conceptual model evaluating
corporate reputation:
1. financial performance;
2. leadership;
3. social responsibility;
4. emotional appeal;
5. products and services quality;
6. work environment;
7. organizational behavior;
8. innovation;
9. evaluation of products and services;
10. corporate strategy;
11. good governance;
12. good citizenship.
In this way, we propose an integrated model, for the evaluation of
corporate reputation, founded on reputation indicators through the
application of the Network Analysis as score rating system (Borgatti
et al., 2013).
We suggest the construction of one questionnaire for internal
stakeholders, with a score system based on Likert Scale (from 1 to 5
levels of intensity), composed of 12 characteristics (questions) as
before represented (financial performance; leadership; social
responsibility; emotional appeal; evaluation of products and services;
work environment; organizational behavior; innovation; corporate
strategy; good governance; good citizenship). Values (V) resulting
from the sum of scores obtained for each question/answer on the
internal surveys are then deducted from alike values achieved through
the external surveys.
An example is represented in the following table. We imagine a
survey conducted on three persons on internal level, with score points
assigned in relation to the question. Final values (V) resulting from
the gap internal/external are the measure at the time 1 (t1).

218
Survey Score Score Score Total Investor Score Score Score Total Distance
(internal) Score relation analysis Score (V)
IS (external) ES
Financial 1 1 2 4 Financial 2 2 5 9 5
performance performance
Leadership 1 1 1 3 Leadership 2 1 1 4 1
Social 3 4 3 10 Social 1 3 3 7 3
responsibility responsibility
Emotional 2 2 1 5 Emotional 1 3 1 5 0
appeal appeal
Products and 1 1 1 3 Products and 1 1 3 5 2
services quality services quality
Work 5 5 1 11 Work 4 5 1 10 1
environment environment
Organizational 3 2 3 8 Organizational 3 1 3 7 1
behavior behavior
Innovation 5 5 5 15 Innovation 5 5 3 13 2
Evaluation of 1 1 1 3 Evaluation of 2 2 2 6 3
product and product and
services services
Corporate 4 4 1 9 Corporate 3 4 1 8 1
strategy strategy
Good 5 4 5 14 Good 3 4 1 8 6
governance governance
Good 2 2 1 5 Good citizenship 2 1 1 4 1
citizenship

If we analyze the accounting period under one year (t1), we can

introduce the value distance (V) as the measure of relationship
between characteristics (properties) of corporate reputation, useful for
completing the entering matrix of Network Analysis composed of
variables of corporate reputation.
The result of each dimension, by completing the following matrix,
needs to be analyzed in terms of distance score between dimensions
evaluating relationship and composing the survey (corporate
reputation of a bank). For example:
Financial Performance Financial Performance = 5 5 = 0
Financial Performance Leadership = 5-1 = 4
Financial Performance Social responsibility = 5- 3 = 2

219
 Social Responsability

Work environment

Corporate strategy
Emotional Appeal

Good governance

Good citizenship
services quality

Organizational
Products and

Evaluation of
products and
Performance

Leadership

Innovation
Financial

behavior

services
Financial 0 4 2
performance

Leadership . 0 . .

Social . . 0 .
responsibility

Emotional
appeal

Products and
services
quality

Work
environment

Organizational
behavior

Innovation

Evaluation of
products and
services

Corporate
strategy

Good
governance

Good
citizenship

After completing matrix, the following step is the transformation of

the values included in the entering matrix in to a dichotomized matrix
with a binary system values (0 and 1), identifying the existence of
relationship between variables expressing corporate reputation. The
first result is the graph of such relationships and a set of indicators
summarized as follows:

220
1. density;
2. geodetic distance;
3. compactness;
4. breadth;
5. centrality;
6. betweenness;
7. clique.
Completing the conceptual model for the assessment of corporate
reputation and so Cash Holding of bank industry, we need the
construction of pondered framework with weights useful to explain
indicators and the representation of their validity in composing the
final indicator General Reputation Index.
In other words, the value resulting from the General Reputation
Index can be included in three main categories indicating low,
medium and high reputation, depending on the range values of the
previous indicators.
The General Reputation Index needs to be compared with the Cash
Holding and performance of the Banks listed on the Italian Stock
Exchange in the second step B) of the research.
In order to do so, we will refer to information contained in the
Investor Relation sections of banks sites and on their Cash Holding.

4. Conclusions
Reputation and perceived confidence of a bank are two key factors
in building the trustworthiness. The satisfaction of bank customers
plays a major role in deciding whether a bank and its staff are
perceived as trustworthy or not. In fact, trust promotes better relations
among different groups. So, both elements (reputation and the derived
trust) are essential to promote good and long run relationships
between a bank and its stakeholders, first of all its customers.
Given that the relation between the bank and its customers
generates a network, in this paper we want to assess, using the
Network Analysis Instrument, if there is a connection between the
bank reputation and its liquidity level.
The main contribution to the literature is related to the combined
use of subjective (marketing) elements and technical

221
analysis/interpretation of banks financial statements/investor
relations reports.
Investigating the relationship between reputation and liquidity
profile, we integrated the existing literature with a new model of
research that brings together the strengths of both the qualitative and
quantitative models.
The main limitation is the partial concept of liquidity we refer to:
the Cash Holding. Indeed, as Basel III will come into force in next
years, in the absence of the related information, on an experimental
basis, this investigation may be narrowed just on a part of a banks
asset liquidity, that is the cash holding. In future, we will extend the
study to other liquid items of the financial statements (i.e. high quality
liquid assets) and to the funding side of the balance sheet.

222
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 ENTREPRENEURIAL, RENEWAL AND TRUST
CAPITAL: ARE THEY FACTORS INFLUENCING
CORPORATE PERFORMANCE? EVIDENCE FROM
ITALIAN FIRMS
Francesca Maria Cesaroni, Mara Del Baldo
Department of Economics, Society & Politics School of Economics
University of Urbino Carlo Bo
Urbino Italy

Paola Demartini1
Department of Business Studies University of Rome TRE
Rome, Italy

Paola Paoloni
Department of UNISU Niccol Cusano University
Rome, Italy

ABSTRACT
The aim of the work is to analyse the relationship between entrepreneurial
capital (EC), renewal capital (RC) and trust capital (TC), considered as stand-alone
components of intellectual capital (IC), and firms performances. To this end an
empirical research was carried out based on a sample of Italian companies. Surveys
results show that EC, RC and TC have a positive influence on Italian medium and
large companies performance. Findings contribute to understand how EC, RC and
TC affect organisations value creation and enable organisations to improve their
performances by a better management of knowledge-based resources.

Keywords: Entrepreneurial capital, Renewal capital, Trust capital, Intellectual

Capital, Entrepreneurship, Innovation, Intangible assets, Medium and large firms

1
Corrisponding author paola.demartini@uniroma3.it
 1. Introduction
In most studies IC (Intellectual Capital) has been seen to consist of
three elements: human capital, structural capital and relational capital
(Bontis, 2001; Guthrie, 2001). However, emerging studies (Kianto,
2007; Kianto, 2008; Kianto et al., 2013; Demartini & Paoloni, 2013;
Inkinen et al., 2014) suggest that three other elements could also be
included in IC visualizing and mapping: entrepreneurial capital (EC),
renewal capital (RC) and trust capital (TC). RC reflects companies
propensity to engage in new ideas and in develop innovative and
creative initiatives. TC synthesizes the trust embedded in companies
internal and external relationship with stakeholders. EC concerns the
competence and commitment related to entrepreneurial activities in
the organisation and is related to autonomy, risk taking, proactiveness,
and competitive aggressiveness of the company personnel. We
assume that these new components that have been recently
identified in the literature represent important elements of IC
construct and act as key drivers to leverage firms value and
performances. Previous literature has not adequately and explicitly
explored the relationship among the distinctive IC components,
specifically the aforementioned new components and businesses
value creation and performances. Consequently, we decided to
investigate EC, RC and TC to empirically verify the hypothesis of
their influence on firms performances.
Departing from these assumptions the purpose of this paper is to
show preliminary results from the Italian research unit of an
international project on IC and value creation led by Lappeenranta
University of Technology LUT (Finland). The main research
question of the overall project is to understand how IC assets and their
management practices interact to create value. Within the overall
project, the Italian research unit focuses on EC, RC and TC in order to
understand if and how do they affect firms performances and value
creation (Cesaroni et al., 2014). Therefore our main research question
is: Does a relationship exist between EC, RC and TC levels and firms
performances? Even if we are mainly interested in these new IC
elements, to answer this question we present an empirical research
based on a comprehensive definition of IC including traditional and

228
new components. We used three multi-item scales as key constructs
(EC, RC and TC) adapted from Kianto et al. (2010), Garcia-Morales
et al. (2006) and Hughes & Morgan (2007). Surveys results show that
EC, RC and TC have a positive influence on Italian medium and large
companies performance. The study underlines that in the era of
knowledge economy EC and RC represent key resources of
organisations, enabling high innovation performance and
organisational growth and increasing their effectiveness in responding
to future challenges and radical changes in the market.
The paper is structured as follows. In the second section main
studies and theories on IC and its components that fit our research
design are presented. In the third section the research method is
described. Then data analysis are presented and, finally, main
research findings are outlined, followed by conclusions.
Our research agenda will provide academics and managers with
unique insights into the state of art of corporate EC, RC and TC in
Italian companies. It provides tools and guidance for the
improvement of economic performances through a better
management of knowledge-based resources. Furthermore this
research will set the agenda for improving EC and RC practices of
Italian companies and allows comparison with firms from other
countries currently involved in the same project, identifying
different pathways to success.

2. Theoretical Framework
Intellectual capital has been defined as companies total stock of
capital or knowledge-based equity (Dzinkowski, 2000). IC is either
the final product of a knowledge transformation process or the stock
of organisational knowledge itself. IC incorporates three main
components, i.e. IC stocks that together form value: human capital,
organisational (structural) capital, and customer (or relational)
capital (Bontis, 2001; Guthrie, 2001; Nahapiet & Ghoshal, 1998).
Human capital refers to know-how, education, work-related
competencies, and psychometric assessments (McGregor et al.,
2004; Teece, 2000). Structural capital includes assets such as
corporate culture, management processes, databases, organisational

229
structure, patents, trademarks, and financial relations. Engstrom et
al. (2003, p. 288) suggest that structural capital includes all non-
human storehouses of knowledge in organisations. Finally,
relational or customer capital (internal and external relational
capital) refers to organisations customers, brands, customer loyalty,
and distribution channels. Customer capital also refers to consumers
as repositories of information and knowledge that is valuable to
organisations (Bontis, 1998).
While the majority of studies consider the aforementioned
elements of IC, more recently, other scholars (Kianto, 2007; Kianto,
2008; Demartini & Paoloni, 2013; Inkinen et al., 2014) include into
IC three further elements: entrepreneurial capital (EC), concerning
competence and commitment related to entrepreneurial activities in
the organisation (Erikson, 2002); renewal capital (RC) in terms of
innovative solutions, products and services available for the firms
(Kianto et al., 2010); and trust capital (TC) conceived in term of
trust embedded in its internal and external relationship (Mayer et al.,
1995). Consequently, EC, RC and TC should be considered as
specific and important new dimensions of IC, in addition to the
traditional ones (Kianto et al., 2013) that have not been generally
addressed. This broader definition of IC helps us to gain a more
holistic understanding of this organisations asset (Kianto et al.,
2013, p. 1476; Inkinen et al., 2014, p. 2919). Moreover this broad
7-partite definition of IC - taking into consideration the split between
internal and external relational capital - is based upon a wide
understanding of knowledge, as not only the explicit outcomes of
knowledge-intensive work such as patents, formulae and actualized
products, but also as the tacit potential of organisational actors to
e.g. flexibly react to unexpected situations and rapidly changing
customer demands (Inkinen et al., 2014, p. 2920). Following Kianto
et al., 2013 and Inkinen e al., 2014, we therefore hypothesize that in
addition to the three traditionally considered IC stocks also EC, RC
and TC are likely to function as important assets of the firm that
increase its performances.
EC refers to competence and commitment related to
entrepreneurial activities in an organisation and is related with
entrepreneurial orientation of organisational actors (managers and

230
employees). Entrepreneurial orientation reflects the extent to which a
firm engages in product innovation and risky ventures (Miller,
1983). In other words, it reflects the extent to which a firm is
innovative or competitively aggressive (Lumpkin & Dess, 1996).
Entrepreneurial orientation has been described by a set of three to
five behaviours, including autonomy, innovativeness, risk taking,
proactiveness, and competitive aggressiveness. Entrepreneurial
orientation can enhance the relationship between knowledge-based
resources and firm performance (Zahra, 1991; Zahra & Covin, 1995;
Wiklund & Shepherd, 2003; Wu et al., 2008; Rauch et al. 2009).
Entrepreneurship scholars have attempted to explain a firms
performance by investigating its entrepreneurial orientation while
they have not previously deeply analysed EC as a specific IC
component (as well as RC and TC).
EC refers to entrepreneurial behaviour exerted in an organisation
(Erikson, 2002). It is defined as a stock of competences and
personnels attributes related to proactive, risk oriented, and
aggressive decision-making and behaviour (Lumpkin & Dess, 1996).
Proactiveness represents a forward-looking perspective where
firms actively seek to anticipate opportunities to develop and
introduce new or improved products, instigate changes to current
strategies and tactics, and detect future trends in the market
(Lumpkin & Dess, 1996; Slater & Narver, 1995). Proactive firms,
through proprietary learning and experience effects gained over
time, tend to be more attuned to changes and trends in the
marketplace (Hamel & Prahalad, 1991).
Risk-taking reflects an acceptance of uncertainty and risk inherent
in original activity. Its typically characterized by resource
commitment to uncertain outcomes and activities (Lumpkin & Dess,
1996; Covin & Slevin, 1991). Such an approach seeks to take
advantage of evolving situations by capitalizing on the fact that
markets rarely stabilize for any length of time.
Aggressive decision-making is the intensity with which a firm
chooses to compete and efforts to surpass competitors reflecting a
bias toward out doing rivals. It also includes the authority and
independence given to an individual or team within the firm to
develop business concepts and vision and carry them through to

231
completion (Davidson, 1987). Aggressiveness can improve
performances because the emphasis on out-doing and out-
manoeuvring competitors strengthens the firm's competitiveness at
the expense of rivals (Lumpkin & Dess, 1996).
Independence concerns employees ability and will to be self-
directed in the pursuit of opportunities and to exercise their
creativity without being limited by organisations constraints
(Hurley & Hult, 1998). Autonomy is an essential resource for the
creation of new businesses (Lumpkin & Dess, 1996) and is therefore
an important driver of firms flexibility as it allows them to be able
to respond promptly to environmental change and market signals by
quickly reconfiguring their actions and activities (Hughes &
Morgan, 2007).
Concerning EC, the courage, initiative-taking and proactiveness
in an organisation are likely to increase innovation performance by
allowing more self-directed development activities in the firm
(Hughes & Morgan, 2007; Gategory et al., 2010). Risk-taking,
recognizing new business opportunities and ability to make bold
decisions will also help the organisation to produce and to prototype
innovative ideas. An organisation with high EC will be more
competitive through having employees that are willing and
empowered to make fast decisions and to show initiative in solving
problems (Inkinen et al., 2014, p. 2922).
Even if innovativeness is commonly considered one of the main
entrepreneurial postures, in the following we introduce the concept
of RC as specific construct that refers to the ability of an
organisation to continuously develop itself through learning and
innovation.
RC refers to the ability of an organisation to continuously develop
itself through learning and innovation (Kianto et al., 2010). Its
intended in terms of innovative solutions, products and services
available for the firm (Kianto, 2008). An organisation with high RC,
sometimes also called innovation capital (Chen et al., 2004), is able
to build on previous knowledge and to generate new knowledge
(Maditinos et al., 2010), as well as to develop new products, services
and innovative ideas on a continuous basis (Tseng & Goo, 2005;
Kianto et al., 2014, p. 2922). Innovativeness means that firms not

232
only generate new ideas, but also actively implement new ideas,
products or processes (Hurley & Hult, 1998; Subramaniam &
Youndt, 2005). Calantone, avugil, & Zhao (2002) establish that
firms innovativeness has a positive impact on performance and
contributes to competitive advantage by facilitating creative thinking
within a firm's learning activities. Innovativeness also improves the
application of market intelligence acquired through market
orientation activities, which can benefit performance (Han, Kim, &
Srivastava, 1998; Hurley & Hult, 1998). RC as an intangible
resource can be characterized as firms actualized learning
capability. Firms ability to learn and acquire new knowledge is
strongly related with several aspects of firm performance (Nonaka &
Takeuchi, 1995; Andreeva & Kianto, 2011, 2012) and
competitiveness (Edvinsson, 2002; Wiklund & Shepherd, 2003; Wu,
Lin & Hsu, 2007; Wu et al., 2008; Wang & Chen, 2013). The ability
of a firm to update and modify its knowledge and capabilities is
important for sustaining competitiveness, especially for in conditions
of turbulent and hyper-competitive market environments (Teece et
al., 1997; Eisenhardt & Martin, 2000). Renewal capital has become
the most important facet of IC for companies survival in turbulent
environments and their capacity to face turbulently and unexpectedly
changing environments (Edvinsson, 2002).
Finally, TC is represented by trust embedded in firms internal
and external relationship. Among literature, different contributions
underline that TC has powerful explanatory power over
organisational performance. Trust contributes to organisational
cooperation and collaboration (Mayer et al., 1995). A high level of
trust among colleagues generates an environment that supports
calculated risk-taking and entrepreneurial orientation (Costigan et
al., 1998). Furthermore, Zeffane and Connell (2003) stated that
organisational efficiency is possible only when the actors work
together in a climate of positive trust. Trust increases the efficiency
and effectiveness of communication and knowledge-creation
processes (Blomqvist, 2002). Trust adds to the efficiency,
effectiveness and innovation performance of organisations, which
rely heavily on their interpersonal and intra-organisational
collaboration (Ellonen et al., 2008). Moreover, trust improves

233
resource exchange and production innovation (Chen & Hung 2010;
Inkinen, 2014, p. 2923).
Kianto et al., 2013 assume that the trust capitals effects on
performance will be stronger when knowledge management-related
human resources practices are used because when personnel
recruitment and selection are utilized properly also TC will be
leveraged more effectively due to the right kind of personnel (Kianto
et al., 2013, p. 1478). In addition, they assumed these practices will
affect on organisational performance through improved TC or that
strategic knowledge management practices effect on performance is
mediated by human capital (Kianto et al., 2013, p. 1479).
In the light of this brief literature review, we hypothesize that EC,
RC and TC represent critical intangible assets that can contribute to
firms value creation, especially in periods of turbulence and
economic crisis. To verify this hypothesis, after having
conceptualized EC, RC and TC, in the following sections, we first
operationalize EC, RC and TC constructs and then we empirically
examine their influence on Italian companies performances.

3. Research method
3.1 Sample
In order to verify the existence of a relationship between EC, RC,
TC and firms performances, an empirical research has been carried
out, by means of a structured questionnaire, using key-informant
technique.
The target population comprised a cross-industry sample of
Italian companies that included all firms with at least 100
employees.
To select the sample AIDA database was used. This database
covers 1 million Italian companies and it contains comprehensive
information about them, including: financial statements, business
description (registered office, legal form, size, industry, ownership
and management) and financial ratios.
A total of 2.000 companies were selected from this database, in
order to respect industry, size and geographical stratification existing
in the Italian population. This means that companies were randomly

234
chosen within fixed percentage based on geographical area (North,
Centre and South Italy), industry (primary sector, secondary sector
and services) and size (100-499 employees; 500-999 employees;
1000 and more employees).
Out of the 2.000 companies 105 completed our questionnaires,
representing a response rate of 5,25 per cent. After deleting
unobtainable or unavailable firms and questionnaires with missing
data, the final dataset included 100 feasible questionnaires.

3.2 Survey data collection

Questionnaires were submitted to a key informant in each firm
included in the sample. First of all, the CEO was involved. When
CEO cannot be realistically reached, other high-level
directors/managers were contacted (in the order of preference):
Chief Operating Officer, General director, HR / KM Director; other
director or manager.
The data have been collected from October 2013 and March
2014. A hybrid approach to gather data was followed. First of all the
research team carried out an Internet-survey using an internet-
administered survey questionnaire (Google questionnaire). In this
phase a link to the questionnaire was sent each respondent. This also
allowed for follow-ups and reminders. To increase the number of
completed questionnaires, in the remaining firms key-informant
were contacted via telephone and each question was asked and filled
by the research team. Finally, face to face interviews were carried
out.
In order to make respondents comfortable and willing to filling
the questionnaire, information about the surveys purpose and the
use of data was provided, as well as instructions to answer the
questions (how to answer, deadline). Furthermore confidentiality in
analysing data was emphasized and a summary of the results was
promised to the respondents.

3.3 Measures
Questionnaire submitted to sample firms was divided into
different sections aiming at grasping data on: basic company
information; IC stocks; companies performance.

235
 Intellectual capital stocks. In order to analyse the relationship
between firms performance and EC, RC and TC, we had to
operationalize these concepts. In social science operationalizing
variables involves defining a concept in order to measure it. In this
research EC, RC and TC were measured by scales developed mostly
by the international research group (Inkinen et al., 2014) (Table 1).
It must be noted that, even if innovativeness is commonly
considered one of the main entrepreneurial postures, in this analysis
we considered innovativeness as a stand-alone construct. In fact RC
refers to organisations ability to continuously develop itself through
learning and innovation (Kianto, 2008; Kianto et al., 2010). The
scale for RC includes four items related to learning and
inventiveness of the organisation (Inkinen et al., 2014). EC refers to
human resources competences and abilities concerning proactivity,
risk-orientation, and aggressiveness in decision-making and in
behaviours. Scale for EC includes six items related to risk-taking,
proactiveness and aggressive decision-making among firms
personnel (Hughes & Morgan, 2007; Inkinen et al., 2014). TC refers
to trust embedded in intra- and inter-organisational relationships.
Statements in the questionnaire are oriented to understand if
companys image, reputation and competences inspire confidence in
its external stakeholders, if company respects its commitment
towards stakeholders and if company has a climate of trust. The
scale for TC includes five items related to the trust embedded in
firms internal and external relationships (Mayer et al., 1995;
Inkinen et al., 2014).
Even if this paper focuses the relationship between EC, RC and
TC and firms performances, in our analysis we used a
comprehensive model that includes all the components of IC,
including the traditional ones: human capital, structural capital and
relational capital. Consistently with Inkinen et al. (2014), relational
capital was split into internal and external categories, because
they refers to relationships with different stakeholders. In this way
we can separate relationships with external parties and intra-
organisational relationships.
Scales and statements included in the questionnaire and used to
measure these IC components are shown in Table 1.

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 Table 1 Questionnaire statements. IC stocks

To what extent do the following statements on the entrepreneurial orientation apply to your
company? (1 = Completely disagree, 5 = Completely agree)
Risk-taking is regarded as a positive personal quality in
ENTCAP1 1 2 3 4 5
our company.
Our employees take deliberate risks related to new
ENTCAP2 1 2 3 4 5
ideas.
Our employees are excellent at identifying new business
ENTCAP3 1 2 3 4 5
opportunities.
ENTCAP4 Our employees show initiative. 1 2 3 4 5

The operations of our company are defined by

ENTCAP5 1 2 3 4 5
independence and freedom in performing duties.

Our employees have the courage to make bold and

ENTCAP6 1 2 3 4 5
difficult decisions.

To what extent do the following statements on renewal apply to your company? (1 = Completely
disagree, 5 = Completely agree)

Our company has acquired a great deal of new and

RENCAP1 1 2 3 4 5
important knowledge

Our employees have acquired a great deal of important

RENCAP2 1 2 3 4 5
skills and abilities

Our company can be described as a learning

RENCAP3 1 2 3 4 5
organisation.

The operations of our company can be described as

RENCAP4 1 2 3 4 5
creative and inventive.

To what extent do the following statements on trust apply to your company? (1 = Completely
disagree, 5 = Completely agree)

The way our company operates is characterized by an

TRUSCAP1 1 2 3 4 5
atmosphere of trust.

TRUSCAP2 We keep our promises and agreements. 1 2 3 4 5

Our company seeks to take the interests of its

TRUSCAP3 1 2 3 4 5
stakeholders into account in its operations.

The expertise of our company inspires trust in

TRUSCAP4 1 2 3 4 5
stakeholders.
The image and reputation of our company inspire trust
TRUSCAP5 1 2 3 4 5
in stakeholders.

237
To what extent do the following statements on employee competence apply to your company? (1 =
Completely disagree, 5 = Completely agree)
HUMCAP1 Our employees are highly skilled at their jobs. 1 2 3 4 5

HUMCAP2 Our employees are highly motivated in their work. 1 2 3 4 5

HUMCAP3 Our employees have a high level of expertise. 1 2 3 4 5

To what extent do the following statements on internal structures apply to your company?
(1 = Completely disagree, 5 = Completely agree)

Our company has efficient and relevant information

STRUCAP1 1 2 3 4 5
systems to support business operations.

Our company has tools and facilities to support

STRUCAP2 1 2 3 4 5
cooperation between employees.

Our company has a great deal of useful knowledge in

STRUCAP3 1 2 3 4 5
documents and databases.

STRUCAP4 Existing documents and solutions are easily accessible. 1 2 3 4 5

To what extent do the following statements on internal cooperation apply to your company? (1 =
Completely disagree, 5 = Completely agree)
Different units and functions within our company such
INTREL1 as R&D, marketing and production understand each 1 2 3 4 5
other well.
Our employees frequently collaborate to solve
INTREL2 1 2 3 4 5
problems.
INTREL3 Internal cooperation in our company runs smoothly. 1 2 3 4 5

To what extent do the following statements on external cooperation apply to your company? (1 =
Completely disagree, 5 = Completely agree)
Our company and its external stakeholders such as
EXTREL1 customers, suppliers and partners understand each 1 2 3 4 5
other well.

Our company and its external stakeholders frequently

EXTREL2 1 2 3 4 5
collaborate to solve problems.

Cooperation between our company and its external

EXTREL3 1 2 3 4 5
stakeholders runs smoothly.

All of the measures were based on a five-point Likert scale. So we

assigned a value of 1 if respondents completely disagree with the
statement, up to a 5 if they completely agree with the statement.

238
 Questionnaire statements were originally written in English. Each
international partner took care in translating it into his own language,
with the help of professional language experts. Additionally, the
Italian research team finally checked the questions, to ensure that
respondents could answer them correctly. The core message of each
item should remain the same to ensure standardization and
applicability of the measures across countries.
The survey was conducted in exactly the same format in all
countries. This means using all of the items in the survey, and in the
same order, and with the same scales.
Companies performance. The following corporate performance
measures were obtained from AIDA database: Return on Assets
(ROA); Return on Investments (ROE); EBITDA (Earnings before
Interests, Taxes, Depreciation and Amortization).
Data collected were analysed through principal component analysis
and multiple linear regression.

3.4. Data analysis

To verify that EC, RC and TC can positively and significantly
affect firms performances, a model of multiple linear regression was
developed. Findings from this analysis are useful to understand if IC
stocks are able to affect organisations value creation. Moreover this
information can help in identifying effective management practices to
enhance value creation process in different business environment.
Linear regression was preceded by a principal component analysis
(PCA), carried out in order to reduce the variables corresponding to
the different components of IC and turn them into a smaller set of
artificial variables.
PCA is a multivariate statistical method. It helps in reducing a
variables set in a less numerous set. In particular, given an X matrix
with n statistical units and k quantitative variables, quantitative, PCA
synthetises data in order to reduce X matrix columns, by defining a
number q<k of artificial variables. The latter are linear combination of
observed variables and have the following characteristics: i) they are
mutually correlated; ii) each has maximum variance in order to
disperse the least amount of information. From a geometrical
perspective, an X matrix can be represented by n points in space Rk .

239
This means projecting the n points in a subspace Rq so that the cloud
of n points in Rk is deformed as little as possible. The starting matrix
used for this analysis was an MxN matrix, with M=100 e N=28. It was
derived from assessments provided by 100 companies replies to
questionnaire statements about 28 items correspondents to IC stocks.
So PCA was aimed to reduce X matrix columns, defining a number
q<28 of artificial variables able to produce a maximum of
information.
For each IC stocks an ACP was carried out in the variance-
covariance matrix.
To reduce the dimensionality of percentage of explained variance
was used. Each first component for each IC element explains at
least 60% of the variance; accordingly, the first component for each
category of IC was considered (Table 2).

Table 2 Principal component analysis. Results

Percentage of variance explained by the first

Principal components for each IC component
component in each IC component

Human Capital 60,40%

Structural Capital 72,60%

Internal Relational Capital 70,50%

External Relational Capital 69,90%

Renewal Capital 70,80%

Entrepreneurial Capital 79,70%

Trust Capital 75,90%

In the second phase of the analysis we developed a multiple linear

regression model, in which:
- independent variables: IC components, reduced using PCA;
- dependent variables: EBITDA, ROI, ROA, referred to 2011, 2012
and 2013;
- control variables: personnel involved in R&D, sales; percentage
of employees with high degree education.
- dummy variables: employees, location and industry.

240
4. Findings
On the basis of the listed variables three different multiple regression
models were developed, one for each performance indicator as
dependent variable (EBITDA, ROI, ROA). Each regression model is
presented in the following.

4.1 First Model: EBITDA

This model is represented by the following equation:
EBITDAi=o+1humancapitali+2structuralcapitali+3intrelationalcapit
al+4extrelationalcapital+5entrepreneurialcapital+6trustcapital+7re
newalcapital+8R&Dshare+9sales+9highedu+10dummysector+11d
ummylocation+12dummyemployees+i
This model (Table 3) has an R2 = 31.6% and an Adjusted R2 =
17.6%. The low value of the Adjusted R2 is due to the large number
of explanatory variables used in the model. The analysis of the p-
value highlights a statistically significant relationship between
EBITDA and EC.

Table 3 Regression Analysis: EBITDA

Predictor Coef SE Coef T P

Constant 16.358 7.937 2.06 0.042
R&DShare -0.06804 0.06991 -0.99 0.335
Sales -0.3103 0.2958 -1.05 0.297
HighEdu -0.00010 0.03825 -0.02 0.1000
HumCap -0.781 1.261 -0.62 0.538
IntRelCap -1.742 1.119 -1.56 0.677
RenCap 0.166 1.027 0.16 0.872
ExtRelCap 0.432 1.036 0.42 0.123
StruCap -1.042 1.214 -0.86 0.393
TrusCap 1.221 1.237 0.99 0.327
EntrCap 12.943 0.7390 1.75 0.044
DummySec -19.692 3.876 -5.09 0.034
DummyLoc -33.305 50.027,00 -0.67 0.507
DummyEmpl 60.149 50.753,00 1.19 0.239

S = 10.2082 R-Sq = 31.6% R-Sq(adj) = 17.6%

In order to obtain a best model in terms of adaptability, only the

explanatory variables that, in the previous model, had the lowest
levels in the p-value have been subsequently considered. In this way a
new model was obtained (Table 4).

241
 Table 4 Regression Analysis: EBITDA (selected variables)

Predictor Coef SE Coef T P

Constant 13.927 5.777 2.41 0.018

R&DShare -1.585 1.224 -1.30 0.199
Sales -0.3699 0.2767 -1.34 0.185
ExtRelCap 17.896 0.9475 1.89 0.052
TrusCap 1.441 1.242 1.16 0.249
StruCap -1.534 1.224 -1.25 0.114
EntrCap 11.148 0.5743 1.94 0.042
DummySect -19.554 3.715 -5.27 0.024
DummyEmpl 5.475 2.242 2.44 0.017

S = 9.93720 R-Sq = 29.7% R-Sq(adj) = 26.6%

This model reveals that both EC and external relational capital

have a statistically significant positive relationship with EBITDA.
The positive relation between EBITDA and EC shows that, in this
turbulent and unpredictable context, businesses have to be prone to
risk, proactive, innovative and aggressive in decision-making and
behaviour to be competitive and survive. The same model also states
that EBITDA is positively conditioned by external relational capital,
that is by business ability to promote and manage good relationships
with its stakeholders. In particular, the presence of good relationships
with customers would increase efficacy and efficiency in sales
management. Moreover ability to collaborate with suppliers would
have a positive impact on supplies management, with positive
consequences for business profitability.

4.2 Second Model: ROA

This model is represented by the following equation:
ROAi=o+1humancapitali+2structuralcapitali+3intrelationalcapital+
4extrelationalcapital+5entrepreneurial+6trustcapital+7renewalcapit
al+8R&Dshare+9sales+9highedu+10dummysector+11dummylocat
ion+12dummyemployees+i

Also in this case all the explanatory variables selected were

initially included in the regression model (Tab. 5).

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 Table 5 Regression Analysis: ROA

Predictor Coef SE Coef T P

Constant 2.150 6.132 0.35 0.727
HumCap 2.948 1.060 2.78 0.007
RenCap 19.360 0.8361 2.32 0.023
ExtRelCap -0.0657 0.8421 -0.08 0.938
IntRelCap -0.8790 0.9280 -0.95 0.346
StruCap -10.960 0.9896 -1.11 0.271
TruCap 12.328 0.9871 1.25 0.215
EntrCap -0.0060 0.6207 -0.01 0.992
R&DShare 0.10348 0.06330 1.63 0.106
Sales -0.2918 0.2432 -1.20 0.234
HighEdu 0.00957 0.02490 0.38 0.702
DummyLoc 0.453 1.422 0.33 0.752
DummyEmpl -3.082 1.458 -2.11 0.039
DummySect -6.026 3.096 -195 0.056

S = 8.33251 R-Sq = 26.6% R-Sq(adj) = 16.6%

The model shows, in this case, an R2 = 26.6% and an adjusted R2

= 16.6%. Building a new model including only the explanatory
variables with the lower p-value, we obtained a model with R2 =
28.6% and an adjusted R2 = 26.1% (Table 6).

Table 6 Regression Analysis: ROA (selected variables)

Predictor Coef SE Coef T P

Constant 0.658 5.807 0.11 0.610
HumCap 2.903 1.031 2.82 0.006
RenCap -2.0836 0.7477 -2.79 0.007
IntRelCap -1.0969 0.7595 -1.44 0.152
StruCap -1.3376 0.9459 -1.41 0.161
TrusCap 1.0978 0.9177 1.20 0.135
R&Dshare 0.10895 0.05930 1.84 0.070
Sales -0.2840 0.2383 -1.19 0.237
DummyEmpl -3.144 1.497 -2.10 0.039
DummySect -6.686 2.979 -2.24 0.027

S = 8.23428 R-Sq = 28.6% R-Sq(adj) = 26.1%

This model allows identifying a statistically significant positive

relationship between ROA and human capital and between the ROA
and RC.

243
 The first relation shows that firms with qualified, experienced and
motivated employees are more competitive and obtain better
performances. In fact they would be more effective in managing
business processes, with positive consequences in terms of profitability.
The same model also shows a statistically significant positive
relationship between ROA and RC. This relationship confirms the
hypothesis that RC is the new bottom line (Kianto et al., 2010) of IC.
Today organisations face a very turbulent context and have to
continuously develop and renovate their competences to keep up with
the market and not be overtaken by competitors. Organisations have to
be innovative and able to continuously learn, in order to propose new
products and services and to innovate their processes.

4.3 Third Model: ROI

This model is represented by the following equation:
ROIi=o+1humancapitali+2structuralcapitali+3intrelationalcapital+4
extrelationalcapital+5entrepreneurialcapital+6trustcapital+7renewalc
apital+8R&Dshare+9sales+9highedu+10dummysector+11dummylo
cation+12dummyemployees+i

This model (Table 7) shows a R2 = 33.3% and an adjusted R2 =

20.8%.

Table 7 Regression Analysis: ROI

Predictor Coef SE Coef T P

Constant 9.744 6.109 1.60 0.115
HumCap 0.137 1.063 0.13 0.898
IntRelCap 0.4474 0.8977 0.50 0.620
RenCap 2.2405 0.8352 2.68 0.009
ExtRelCap -0.9036 0.7615 -1.19 0.239
StruCap 0.428 1.181 0.36 0.718
TruCap 0.735 1.027 0.72 0.477
EntrCap 1.1604 0.5407 2.15 0.035
R&Dshare -0.04565 0.05367 -0.85 0.398
Sales -0.4575 0.2211 -2.07 0.042
Highedu 0.01492 0.03001 0.50 0.621
Dummyloc 1.803 1.616 1.12 0.268
Dummyempl -3.511 1.718 -2.04 0.045
Dummysect -11.668 2.888 -4.04 0.028

S = 6.90828 R-Sq = 33.3% R-Sq(adj) = 20.8%

244
 Also in this case a simplified model was developed, by eliminating
variables with a too high p-value. The new model (Tab. 8) has an R2
= 32.7% and an adjusted R2 = 26.4%.

Table 8 Regression Analysis: ROI (selected variables)

Predictor Coef SE Coef T P

Constant 11.950 4.772 2.50 0.015
R&DShare -0.04343 0.04967 -0.88 0.285
Sales -0.4196 0.2090 -2.01 0.048
RenCap -2.0172 0.7116 -2.85 0.006
ExtRelCap -0.7998 0.7135 -1.13 0.266
TrusCap 1.0819 0.6437 1.68 0.097
EntrCap 1.1896 0.5172 2.30 0.024
DummyLoc 1.751 1.564 1.12 0.166
DummyEmpl -3.672 1.531 -2.40 0.019
DummySect -1.1172 2.743 -4.08 0.033

S = 6.74916 R-Sq = 32.7% R-Sq(adj) = 26.4%

Analysing the p-value, statistically significant positive relationships

between ROI and RC and between ROI and EC can be identified.
These results confirm that EC can affect business performances, also
when they are expressed in terms of return on investments. The impact
of RC on business profitability is also confirmed.
In addition, a significant positive relationship can be observed
between ROI and TC. This means that TC, embedded in internal and
external relationships, can act as a key factor for business success, in a
context where firms are involved in wide networks with a variety of
stakeholders. When a business is considered reliable by their customers,
its reputation and reliability grow, customers are more prone to buy its
products or services and to suggest them to other people, access to
financing is simpler, relationships with private and public institutions
are easier, and business face less difficulties in dealing with downturn
and recession.

5. Discussion
This analysis confirms the hypothesis that EC, RC and, in a minor
extent, TC can affect firms performances and value creation.

245
 The significant positive relationship between EC and ROI and
EBITDA stresses the importance of EC, which constitutes a key
intangible resource to enhance corporate value (Inkinen et al., 2014).
In a changing environment it is crucial to develop EC, both at the
structural level (corporate culture), and in terms of skills and
entrepreneurial behaviour. Risk appetite and speed in strategic choices
affect profitability because they encourage company to embrace
uncertainty and seize new business opportunities. Aggressiveness in
decision-making, considered in terms of aggressive price competition,
entry into new markets and run-of rivals, improves business
performance as it helps to undermine competitors ability to anticipate
or react to companys strategies (Lumpkin & Dess, 1996). Moreover,
businesss performance are affected by independence and autonomy,
intended as employees ability and willingness to support the company
in responding quickly to market changes and perceiving new market
needs (Hughes & Morgan, 2007).
The analysis also shows the existence of a statistically significant
positive relationship between RC and firms performance in terms of
ROA and ROI. These results confirm the hypothesis that RC is the
new bottom line of IC (Edvinsson, 2002; Andreeva & Kianto, 2011,
2012). In fact, the increasing competition requires companies to
continuously develop and renew their knowledge and capability for
sustaining competitiveness, especially in conditions of turbulent
market environments (Teece et al., 1997; Eisenhardt & Martin, 2000;
Inkinen et al., 2014). Innovativeness is positively related to
performance and value creation, and positively impacts on companies
profitability, as it allows companies to quickly and effectively respond
to new customer needs and therefore increase their competitive
advantage (Calantone et al., 2002; Rauch et al., 2009).
Finally, data from analysis confirm that TC is a business important
asset, which is rare and not easily imitable by its competitors. TC is
important as it helps business in establishing strong and lasting
cooperative relationships with stakeholders, it increases customers
loyalty and, in the end, it is a relevant source of competitive
advantage, that enhance business profitability. Moreover, firms
encouraging the creation of a trust climate inside their organisations
obtain greater involvement and commitment from their employees,

246
and this helps in creating a better relationship with business
customers and in offering better products/services at higher prices,
resulting in a higher profitability.

6. Conclusion
This paper addressed an important issue, which has been relatively
overlooked in the literature on IC so far. It focuses on intangible
assets and confirms their ability to contribute in creating value and
increasing performance. Findings show that in the era of knowledge
economy EC, RC and TC represent organisations key resources,
enabling high innovation performance and organisational growth and
increasing their effectiveness in responding to future challenges and
radical market changes.
This study contributes to theoretical discussion in this field by
demonstrating that IC stocks, and especially EC, RC and TC, can
contribute to enhance firms performances. So it shows new
possibilities for gaining a better overall perspective on intangible
aspects of organisations. Furthermore, by adding three additional
intellectual capital stocks EC, RC and TC to the traditional IC
composition human, structural and relational capital it proposes a
more fine-grained perspective of IC.
We are aware of no previous studies explicitly referred to these
new IC components and to their influence on firms performance.
The paper therefore contributes to the literature on knowledge-based
issues in organisations at large and potentially offers a theoretical
grounding for many empirical and theoretical future studies.
From a practical perspective, the paper underlined that in order to
improve their overall performance, firms should invest in intangible
resources, and in particular EC, RC and TC.
The key limitation of the paper is its focus on Italian firms. Results
from this study in fact represent a first research step. The key future
research path rising from these findings is the need to involve a larger
number of companies located in other countries. Moreover, an
international comparative analysis will be carried out, in order to
understand if environmental variables affect the relationship between
IC and corporate performance.

247
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252
 SOCIAL DISCLOSURES IN HEALTH CARE: THE
HIDDEN REALITY BEHIND BLOOD
TRANSFUSION MEDICINE
Lucia Montanini1, Alessia DAndrea
Department of Management Universit Politecnica delle Marche
Ancona Italy

The authors gratefully acknowledge the Director of the Department of Blood

Transfusion Medicine of the Marche Region, Dr. Mario Piani, and his staff for
their technical support and their perseverance and professional value
to contribute directly to the research.

ABSTRACT
Integrating the social disclosures to financial information represents an
opportunity for healthcare organizations. Going beyond the compulsory records (as
requested by the regulation of the Italian Health System) could allow health
managers to obtain social legitimacy and political consensus on the assigned
objectives and related public funds. The social impact of activities carried out
highlights why, how and to whom the resources are allocated. A measuring of these
variables linked to economic flows permits us also to monitor the results
obtained and, thus, to achieve efficiency and effectiveness in health management.
The research reflects on the relevance of non-financial information in an economic
sector, characterized by non-profit finalities and public logic. Through an empirical
case-study, focused on blood transfusion medicine, the aim of the paper is to outline
a model of social reports for actors who work in this field. The model offers a tool
to evaluate performances in accordance with the multidimensional objectives (social
and economic) and then to disclose the policies and the actions, the results to
stakeholders. The implemented accountability process is reported in the paper.

Key words:
accountability, blood transfusion system, social disclosures, social report,
stakeholder engagement

1
Corrisponding author l.montanini@univpm.it
1. Introduction
In recent decades, reforms of regionalization and corporatization
of the Italian Health System have led the actors to find accounting
tools able to monitor the economic and social activities. They need
to understand the extent of the current sustainability of the activities
carried out in order to guide the decision-making process. This
necessity has allowed the development of sustainable accounting
practices (Gray et al., 1996; Mathews, 1997; Bebbington et al., 2007;
Hopwood, 2009), able to evaluate the performance with respect to
multidimensional objectives (derived from the mission of health
protection), considering the economic and financial constraints.
The health care organizations in Italy are public companies
administrated by each Region. They have organizational and
administrative autonomy, legal personality, their own accounting
system and their own technical governance. The public health
entities ensure the supplying of the levels of care to all citizens - as
established by the central Government - for which the Regions
receive public funds.
The institutional aims of the Italian Health System (IHS) and the
economic constraints imposed by recent reforms have brought the
actors to act responsibly and to monitor the performance of health
care, not only in economic terms, but especially in the social aspect.
Therefore, the management of healthcare organizations should
achieve efficiency and effectiveness (Williams, 1974) and, at the
same time, special attention should be paid to other factors (resource
allocation, logistic services, political consensus) that affect the social
legitimacy and political consensus. In this regard, the use of public
financial resources, on one hand, and the purposes of health
protection requirements, on the other hand, call for transparency and
control on the actors of the IHS. The financial information should be
integrated with those inherent in the social impact of various
activities, subsequently disclosed.
Linking the social disclosures to economic results could represent
an opportunity for those branches of medicine - like blood
transfusion medicine -, characterized by a complexity in the
relationship between ethical values, political vision, assigned

254
objectives and allocated resources. The donation of the raw
materials, on one hand, and the "new public governance" model of
the management, on the other hand, represent some of the distinctive
aspects of such a public sector, in the Italian context. If the respect
of economic constraints becomes a responsibility in managing public
resources - like in any public organization -, the achievement of the
institutional goals cannot be evaluated only considering the financial
information and the economic parameters.
The current compulsory disclosures, in fact, concern the amounts
of expenses in each typology of utilized goods and the related values
of the planned monetary fund, allocated by the regional public
authorities. The health care objectives as for other medicine
sectors guide the definitions of the financial allocation, taking into
account the strategies defined by the director of the transfusion
medicine centers. This definition process depends on the
organizational models of the transfusion activities in each region.
The mechanism, briefly cited, does not currently require a reporting
process on the non-financial information, linked to the use of
economic public funds. An accountability model about the social
and political impacts of the policies and the real value created by
blood transfusion medicine could be developed to integrate the
compulsory disclosures. In this direction, the physical data and the
narrative description connected to the financial information could
help to generate legitimacy and public consensus on the resources
employed in achieving the aim of the protection of the patient's
health. Indeed, as stated by Porter and Olmsted Teilsberg (2006, p.
98) "the right objective for health care is to increase to value for
patients, which is the quality of patient out as related to the
expended dollars. (...) Every policy and practice in health care must
be tested against the objective of patient value."
A report based on the integration of medical-clinic information
and economic data could support the analysis and representation of
the variables (Bebbington et al., 2008; Adams, 2008), which
characterize blood transfusion medicine.
Based on the above considerations, the paper intends to outline a
model of social reports for organizations of Transfusion Medicine
aimed at meeting the needs of legitimacy and public consent. The

255
model desires to be a support, also, for the management decisions in
the pursuit of the objective of self-sufficiency.
The present research reflects on the relevance of non-financial
information in a "business" characterized by no profit finalities and
public logic in the government of all activities, derived from a
volunteer act and performed to meet health needs.
The disclosures provided by the national legislation (mainly
economic) have to be supplemented by non-financial information
(qualitative and quantitative) on the social impacts of its activities, in
order to allow the assessment of achieving institutional goals.
In this sense, the Social Report is set up as the result of a process
of accountability articulated in phases linked together involving
several players in the transfusion system (Copenhagen Charter;
AA1000; AA1000SES;).
The paper aims, therefore, to develop an accountability process to
measure and to evaluate the economic and social performance of
transfusion activities, the satisfaction and expectations of
stakeholders. Moreover, the model wants to provide useful
information to health managers in the decision about the use of
available resources (financial, human, technical).
Specifically, the present work is the result of a research project -
on Corporate Social Responsibility topics and social accountability
mechanisms - of the Department of Management of the Polytechnic
University of Marche with the Department of Transfusion Medicine
of the Marche Region.
Through an empirical case-study (Yin, 2003) - the Regional
Department of Transfusion Medicine of the Marche Region - the
present work outlines a model of report suitable to describe and to
account to multiple stakeholders, operating within and outside the
system, the complexity of the network transfusion and the ways in
which resources are used. In addition, existing case studies
(Peursem, 1999; Resnik, 2007; Kastberg and Siverbo, 2012; Kuntner
and Schallmeiner, 2013) have guided the development of the
research.
Starting from the context of the Marche Region, the paper
presents the process of accountability for the case-study and it offers

256
a model of socio-economic accountability, applicable to the realities
on the national scenario.
After a brief review of the literature on the integration of
voluntary social disclosure of financial and compulsory information,
the paper presents the peculiarities of the national Blood Transfusion
system and a brief mention of the regional organization of the case-
study (paragraph 3). Subsequently, the implemented process in
building the non-financial information system (with the empirical
evidence of the dimension and the nature of the objectives, the
actions and the results) is presented. Finally, there is a discussion of
the social report, derived from the process, which has been compiled
and edited according to international and national accountability
standards (paragraph 4).

2. Social disclosures in public health organization: the reasons

The activities of health organizations can have an influence on a
wide range of different stakeholders. For example: the patients
require appropriate, safe and secure services to guarantee their health
care; the internal human resources need training and a good working
environment, to ensure the good quality of their job; the suppliers in
this sector are partners in searching for daily solutions for adequate
technologies and goods; the health authorities have to assess the
respect of institutional goals.
In other words, the organizations have to identify, to manage and
to respond to performance perceptions of individuals or groups,
whose support is critical to an organizations long term success. In
detail, the medical center should demonstrate its responsible
behavior in achieving the health safeguard to all citizens and the
transparent and adequate management of public funds. They need
accountability mechanisms able to recognize stewardship for the
resources entrusted to it (Gray and Guthrie, 2007, p. 91) and to
demonstrate and raise the trustworthiness (Owen et al., 2001). A
combination of quantitative and qualitative financial and non-
financial information could help the health managers in this
legitimization process (Gray and Guthrie, 2007; Hopwood 2009). As
in any organization, through social accounting - containing all

257
forms of accounts which go beyond the economic (Gray, 2002, p.
687) - the medical center could approach the measurement of the
impact of its activities upon the social environment within which it
operates.
The social and political context may constitute an influencing
factor in shaping social and environmental disclosures (Burchell et
al., 1985; Adams and Harte, 1998). In Italy, the compulsory
disclosures are mainly focused on economic and financial data; the
current legislation does not require business organizations to
disclose information about the social and environmental public
impact of all actions carried out (see the reference to directives about
the annual report, ratified in the Civil Code). About this point, as
stated by Roberts (1991) annual reports may result in a somewhat
incomplete picture of disclosure practices'' (p. 63).
The same limit is present if the attention is focused on public
health entities. The organization and the functioning of the Italian
Health System are regulated completely by national (and regional)
laws (the principal reference is to Legislative Decrees no. 502/1992
and no. 229/1999), which ratify compulsory information, financial
accounting and accountability tools. The current disposals allow
organizations to report on the use of public funds. A systemic report
with the explanation of the achievement of the assigned tasks in
favor to each category of stakeholder - is not provided in the
compulsory schemes. According to the cited laws (and subsequent
updates and integrations), a brief report on the main activity is a part
of the annual report of a juridical autonomous entity in the health
sector. As recognized by Kaptein (2007), an integrated system of
social, environmental and economic disclosures represents the
instrument par excellence for managing stakeholder relations as
such, it is a concrete manifestation of a companys commitment to
transparency (p. 72).
What, why, when, and how certain items are addressed by
management in their communication process (Magness, 2006) to
stakeholders could depend on the corporate culture (Adams 2002) or
the motivation (also political and economic) of managers (Patten,
1992; Freedman and Stagliano, 1992; Roberts, 1992; Adams et al.,
1998; Deegan, 2002).

258
 For each stakeholder, a multidimensional report (with social and
if possible environmental disclosures), on one hand, could
support the health authorities (and managers) in their decision-
making process (Kastberg and Siverbo, 2012); on the other hand, the
process and the final communication tool (social report, for
example) could legitimize the medical center for each citizen (acting
as patient, human resource, supplier and so on). The determination
of voluntary social disclosures to integrate economic measures and
compulsory information, in the first step, guides the assessment of
the institutional goals (also assuring the respect of economic
constraints). Thus, these variables are the basis on which to build the
accountability process and to develop a multi-dimensional report
(Resnik, 2007; Kastberg and Siverbo, 2012; Kuntner and
Schallmeiner, 2013).

3. The Blood Transfusion System: activities, governance and

organization
3.1. The Blood Transfusion System in Italy
Before illustrating the gap in the current compulsory information
system and the subsequent accountability process to be developed, in
the present paragraph we will briefly present the context of analysis:
the blood transfusion system.
A look at the global context highlights the presence of
heterogeneous characters in the organization and management of
transfusion activities in different countries. The differences arise
mainly from the policies adopted about the voluntary nature of the
donation, the public nature of one or more actors, the consequent
regulation and organizational model.
A study by the World Health Organization (2011) revealed that in
62 countries (out of 164 analyzed) the donations are voluntary,
anonymous and unpaid; in the remaining countries, donors can be
paid or donate to cover family needs. In developed countries, the
collection is about 30,000 donations per year (compared to a range
that goes from 7,500 per year to 3,700 per year in other countries).
The Italian regulation ratifies standards of quality and safety for
the collection, testing, processing, storage and distribution of human

259
blood and its components. Specifically - through legislative decrees
(n. 207/2007; n. 208/2007; n. 261/2007), agreements (State-Regions
Agreement of the 16th December 2010, State-Regions Agreement of
the 25th July 2012) and specific protocols - the National Authorities
adopted the directives contained in the European legislation
(Directive 2005/62/EC, in application of Directive 2002/98/ EC;
Directive 2004/33/EC; Directive 2005/61/EC).
The specific functioning of the national system, in terms of the
typologies of transfusion activities, the principal actors, the
authorities, the reporting system is contained in the law n. 219/2005.
The latter sets out the anonymous, voluntary, free character of
donation. It recognizes that transfusion activities are included in
essential health care levels in order to ensure national self-
sufficiency of blood and blood components. According to the same
law, transfusion activities are the promotion of donation, production
activities, diagnostic services and treatment services in transfusion
medicine. The promotion activity is entrusted to donor associations
and federations (non-profit). The human resources who operate in
the transfusion centers carry out the other two activities, in
connection with plasma-derived production companies (for
processing the collected plasma and obtaining plasma-derived
products) and the clinicians of public and private hospitals (for the
supplying of care activities).
The law n. 219/2005 establishes the technical body of the
National Blood Center (which operates at the regional level by
Regional Blood Centers), with coordination functions and technical
and scientific control about the aspects defined by European and
Italian regulations.
The different actors in the transfusion system (private, public and
non-profit organizations) operate by coordinating their policies, in
accordance to institutional goals. The public governance - as
presented - could be assimilated to the archetype of the new public
management (Rhodes, 1997), where public and private entities
operate through formal and informal relations in "regimes of laws,
rules, judicial decisions, and administrative practices that constrain,
prescribe, and enable the provision of publicly supported goods and
services" (Lynn et al., 2001, p .7).

260
 3.2. The Department of Transfusion Medicine of the Marche
Region: organization and governance
The Marche Region, with the Regional Law n. 13/2003
established the Regional Inter-company Department of Transfusion
Medicine. Subsequent regional provisions (DRGM. N. 873/2008 and
Resolution no. 1731 of 29/11/2010) have defined the organizational
model and the operating procedures which are briefly recalled
below.
The Department is the organizational and operational tool in the
technical, scientific, logistic and administrative aspects of the
transfusion activities of the Marche Region. The management team
has the function of planning, coordination and control of the twelve
operational units of transfusion medicine, organized into four areas.
Each Unit operates one or more Territorial Collection Units. To
facilitate the process of regional coordination, the applied
organizational model provides for the presence of a Department
Committee composed of exponents of both the transfusion structures
and the associations.
Moreover, in order to ensure the achievement of the objectives set
out in the programming tools - the blood level and the regional
economic and financial budget - technical committees are active.
These committees have the task of monitoring, through quarterly
reviews, the needs and the use of technical and economic resources
by the operating units belonging to the territory under its own
jurisdiction.
The Regional Blood Center carries out the intra-regional
compensation, centralized inventory management of plasma and the
sale of surplus blood, plasma and plasma derivatives to other
regions. The Regional Blood Center also manages relations with the
plasma-derivatives companies for the guarantee of plasma-derived
products for the benefit of patients.
A peculiar characteristic of the regional blood transfusion system
is the centralization of activities related to the Laboratory of
Molecular Biology and Serum Virology. It also centralized
management of a transport network in the area, consisting of daily
shuttles, transferring samples and documents, materials, blood

261
components or blood products, among the various operating units
and between each Unit and the Laboratory.
The activities carried out at regional level reflect the primary
activities in Law No. 219/2005.
Taking into account the organizational model and its
repercussions on the decision making process, the managers have to
coordinate the patient needs (and the donor expectations), the
political demands of legitimacy and public consensus, the
availability of productive factors and of economic resources
assigned to the health centers.

4. Why to integrate financial disclosures? The clear potential of

social disclosures in Blood Transfusion Medicine
The traditional financial instruments, by themselves, cannot
account for the dimensions of the real value created (or destroyed)
by blood transfusion activities, carried out by public and private
actors (Peursem, 1995). The economic measures do not highlight the
social costs (such as the loss of quality for inadequacy of the
technologies, the time employed by donors) and the social benefits
(in terms of the safeguard of donor's health, the low cost of plasma-
derivatives derived from donated plasma) of the activities, which go
beyond the monetary impact.
The economic impact of transfusion activities is included in the
annual report by the health care hospitals. The annual reports are
composed of the income statement, the balance sheet, the financial
statement and notes in order to provide the economic and financial
situation at the end of the financial period. The Governmental
Decree of the Ministry of Health (dated June 2012) presents the
financial and economic documents containing the explanation of the
amount of revenues, expenses and assets.
In the case study, the regional Department awards directly a part
of the public funds to finance the activity of administration,
management and coordination of the Marche Transfusion System
(including the purchases of goods and services, the expenses for the
production of plasma-derived drugs and other operations, as reported
in Table 1). The individual hospitals, hosting the transfusion centers,

262
are financed with public funds for the payment of reimbursements to
donor associations (about 2.2 million Euros), human resources costs
(about 14 million Euros), utilities, furnishings and equipment not
included in the centralized procurement (up to 2 million Euros).
Table 1 Financial disclosures related to funds managed by the Department

Year 2013
(in Euros)
Agreements for plasma-derived products 5.720.085,70
Molecular biology (Central Laboratory) 1.451.248,49
Centralized reagents, medical and non-medical materials procurement system 6.007.566,45
Transport network 214.773,49
Integrated regional information system 287.707,91
Training 10.236,72
Promotion of blood collection 44.191,00
Promotion of association projects 35.000,00
General costs 11.075,40
Umbelical cord blood management 242.613,78
Total 14.024.498,94

The economic and financial flows do not represent the evaluation

of the clinical impacts of the activities and, consequently, the respect
of the objectives. The social information about the different activities
could be integrated to the financial information in order to
demonstrate the achievement of the established institutional goals and
to support the decision-making process (Alesani et al., 2005; Kastberg
and Siverbo, 2012). Specifically, the first aim could be achieved
through the adoption of social reporting tools (Gray et al., 1987,
Milne, 1996; Lamberton, 2005; Yougvanich and Guthrie, 2006),
where quantitative and qualitative information of a financial nature or
otherwise is transmitted through different communication means
(annual reports, company reports, environmental reports, and so on) to
the wide group of stakeholders. In this process, stakeholder
participation in the activity of accountability is fundamental, as is the
specific adoption of practices of stakeholder engagement. A dialogue
with stakeholders aims to understand their concerns in order to
involve them in the activities and decisions (O'Dwyer, 2005).

263
 With regard to this point, an indicator system (Ozdemir et al.,
2011) focused on social parameters and variables should support the
accountability process. In other words, the physical or narrative
information about the procedures, the allocated resources and the
obtained results able to sustain the decision-making process
(Borgonovi, 1994; Kastberg and Siverbo, 2012) are requested.
Starting from the definition of the social disclosures, a model of
accountability for the transfusion system could be implemented in
order to develop legitimacy and public consent and, at the same time,
to represent a strategic tool to evaluate the pursuit of the objective of
self-sufficiency (D'Andrea, 2012). Data related to the social aspects
(see, for example, the information in Table 2) should integrate the
accounting system and should support the disclosing (Pluye et al.,
2004).

Table 2 Social disclosures related to funds managed by the Department

Description of the main categories of the Example of associated social indicator

expenses
- Volume of plasma collected for the drug
Agreements for plasma-derived
production;
products
- Number of used drugs (per typologies)
- Number of tests processed and related donated
Molecular biology (Central Laboratory)
units
- Narrative description of procedures
Centralized reagents, medical and non- - Volume of purchased goods (per typology and
medical materials procurement system classified per production activities and clinical
services)
Transport network - Frequency of travels
- Narrative description of organisation of the data
Integrated regional information system to guarantee the traceability of clinical
information
- Number and typology of organized training
Training
courses
Promotion of blood collection - Number and typology of initiatives
Promotion of association projects - Number and typology of initiatives
- Technical parameters related to cost for each
General costs
utility (eg: kwh, mq)
- Number of units of umbilical cord blood collected
Umbelical cord blood management
and banked

Moreover, in order to assess the achievement of institutional

objectives, some information could be integrated in the accountability
process (Table 3).

264
 Table 3 Social disclosures related to institutional objectives some examples in the
Marche Region

Indicator Target Indicato Target

Description of the objective Indicator
2012 2013 r 2013 2014
Maintenance of regional self- produced red
sufficiency of red cells (one of cells/ transfused 104% > 100% 103%* > 100%
the blood components) red cells
invoiced vials of
intravenous
Achievement of self-sufficiency immunoglobulin
of intravenous immunoglobulin (as agreement) / 100% 100% 100% 100%
(plasma-derived product) delivered vials of
intravenous
immunoglobulin

The accountability process has to present the multi-dimensional

information to the interested parties (stakeholders), in order to obtain
legitimacy and consensus about the health management of public
resources. In this respect the development of the accountability
process could be inspired by the model set out in the Copenhagen
Charter (presented for the first time in 1999 at the international forum
"Building Stakeholder Relations - the third international conference
on social and ethical accounting, auditing and reporting ").
Eight phases should be carried out:
1. decision of the management team to establish a relationship with
stakeholders,
2. identification of key stakeholders,
3. establishment of a permanent dialogue,
4. identification of the indicators (social and economic)
5. performance monitoring,
6. identification of improvement actions,
7. preparation and publication of the social (and environmental)
report,
8. consultation with stakeholders (feedback).
The first phase involves only the internal health managers; it
regards the decision to communicate to all citizens the objectives, the
activities, the results and, at the same time, the reasons for the policies
adopted. The creation of a multifunctional team (physicians, health
technicians, administrative staff, researchers in financial and social

265
accounting applied to the public health sector) and the determination
of information tools combine to form the starting point.
The second step is the identification of the stakeholders. This stage
is inspired by the Accountability Standard AA1000 (1999), based on
the principles of inclusivity, materiality and relevance. The
stakeholder map (see, for example, the application in the Marche
Region - Figure 1) highlights the typology of stakeholders and their
relationship with the transfusion organization.

Figure 1 Stakeholder map of the Transfusion System of the Marche Region

The dialogue with each stakeholder is performed according to the

guideline AA1000 Stakeholder Engagement Standard (2005). The
engagement process aims at: "the identification and understanding of
the stakeholders' needs, expectations, challenges and opportunities;
the alignment of strategies and activities with the needs of
sustainability development; the performance measurement and
reporting, implementing and developing performance indicators that
might enable stakeholders to assess organization activities"
(AA1000SES, 2005). For each stakeholder, it is necessary to establish

266
the dialogue tool (mainly questionnaire) as well as the issue to be
discussed (Table 4).

Table 4 Stakeholder engagement activities some examples in the Marche Region

Stakeholders Issues
Donors - Level of knowledge about promotion initiatives
- Satisfaction with the services by physicians and nurses
- Adequacy of the centers and the logistic services.
Human - Satisfaction with instrumentation, work environment,
resources communication and training
Patients - Satisfaction with the services by physicians and nurses
- Satisfaction with the access information
- Opinion about the waiting time
Clinicians - Expectations about the products and services provided
- Opinions on procedures

In addition to the example provided in Table 2 (and in order to

assess the achievement of institutional goals and to guide the
decision-making process), social disclosures related to each category
of stakeholder have to be determined. Each group of stakeholders
represents an accountability area: they act as beneficiaries of
transfusion activities.

Table 5 Social disclosures to each stakeholder

Objectives Social disclosures (some examples)

- The requirements for typology of donation (procedures, time, volume)
Donors - The tests to become donors (number, typologies)
- The typology of the donation units (number)
- The profile of human resources (age, job position)
Human
- The training courses (articulated by topics)
resources
- The activities carried out by each job position and the working time
- The typology of blood components required for each condition (number)
Patients
- The clinical activities (number, typologies)
- The procedures of the centralized reagents, medical and non-medical materials
procurement system
Suppliers - The cases of partnerships articulated by object (the transport network, the
integrated regional information system, the quality verification/certification
systems)

The analysis of each social indicator (linked to specific objectives

and economic values) allows us to develop operative improvement

267
targets and to reflect on future actions (for example, on information
systems, procedures, collaborations and so on).
The result of the implemented process should be transmitted to
stakeholders, in order to demonstrate the implementation of socially
responsible behavior and, consequently, to gain legitimacy and
consensus.
The social report could represent a formal document to disclose
the multidimensional information derived from the accountability
process. The structure of these reports could be inspired by the
Social reporting for healthcare" document, edited by an Italian non-
profit organization, called Gruppo di Studio di Bilancio Sociale
(GBS).

Table 6 Structures of the social report of the Blood Transfusion System

Chapter Topics
- Mission, values, governance and stakeholder mapping of the Marche
Identity
Region Transfusion System
- Identification and description of the actions taken in respect of the
Social Report
interests of each typology of stakeholder
- Description of the environmental impacts of regional blood
Environmental
transfusion activities (descriptive information and estimated
Report
consumption)
Economic Report - Description of the economic resources
Improvement targets - Setting targets for improvement

The document could be presented to stakeholders using different

communication channels. As acknowledged by the literature, the
social report could be disclosed through web forums, conferences,
meetings, leaflets, press releases or internet (Patten, 2002; Unerman
and Bennet, 2004; Adams and Frost, 2006; Gallhofer et al., 2006;
Sikka, 2006).

5. Conclusions
To pursue social benefits in terms of health protection, while
paying attention to the impact in terms of costs and benefits for all
stakeholders, represents a relevant challenge for the actors of
transfusion medicine. To legitimize their daily jobs and the use of the
resources entrusted to them (Gray and Guthrie, 2007), the health

268
managers have the responsibility to report the social impact of the
activities and services.
At the same time, on one hand, the national standards - derived
from the transposition of European directives - require the
transmission of data to the competent authorities and report on
specific areas (economic and/or clinical). On the other hand, all the
tools required by law appear to be not entirely adequate to account for
the expectations of a wide range of stakeholders (Adams, 2002;
Deegan, 2002; Gray, 2002).
As presented in the paper, the social accountability process allows
managers to report on the allocated resources and on the positive or
negative effects of their operations, demonstrating their socially
responsible (and ethically correct) behavior.
In conclusion, the paper demonstrates the potential of social
indicators to be not only a source of information but also to report on
the use of public funds, on one hand, and on the capability to achieve
the institutional goals in the health sector of blood transfusion
medicine. The accountability process and the related social report
the result of the research presented - allow us to highlight the
relationship between the objectives, the activities and the data
(Kuntner and Schallmeiner, 2013).
The multidimensional analysis has to be conducted taking into
account the intrinsic qualities of the field (Suver and Neumann, 1992;
Peursem, 1995) and, at the same time, considering the accountability
theories and standards. In this way, the model is able to give
reliability, to understand the improvement of the resources
management and, so, to obtain public legitimacy.
If applied to other realities, the scheme proposed should consider
the peculiarities of the political situation of the country (or the region)
and the subsequent economic and social policies of the health sector
in general.
The same framework proposed to disclose social information on
transfusion medicine could also be adapted to other specific activities
carried out by the health care organization.

269
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