MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS, HO CHI MINH CITY -TRINH HIEP THIEN Mediating effect of strategic management accounting practices in the relationship between intellectual capital and corporate performance Evidence from Vietnam A summary of dissertation submitted for the Degree of Doctor of Philosophy in Accounting Code: 9.34.03.01 October 2018 MEDIATING EFFECT OF STRATEGIC MANAGEMENT ACCOUNTING PRACTICES IN THE RELATIONSHIP BETWEEN INTELLECTUAL CAPITAL AND CORPORATE PERFORMANCE EVIDENCE FROM VIETNAM Trinh Hiep Thien MPAcc (University of Sydney), MBA (UEH), BBus (UEH) A summary of dissertation submitted for the Degree of Doctor of Philosophy in Accounting Code: 9.34.03.01 Academic Supervisors: Dr Doan Ngoc Que Dr Le Dinh Truc University of Economics, Ho Chi Minh City October 2018 –1– INTRODUCTION Background It is often argued that organizations in today’s knowledge-based economy not only initially invest in physical assets, nevertheless in intangibles, as these are but also today’s value drivers (Mehralian, Rasekh, Akhavan, & Ghatari, 2013) Amongst these intangible assets, IC plays a key role, and its management becomes a critical issue given the direct and indirect advantages i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i When analysing the Vietnamese transitional economic context, Vietnamese enterprises have gradually applied the advanced accounting techniques, in line with market mechanisms because many wholly foreign-owned enterprises established in Vietnam have been providing practical knowledge of strategic management accounting, which has been introduced to Vietnamese practitioners and scholars Therefore, it is inappropriate to state that medium and large enterprises in Vietnam not have any understanding of how to implement strategic management accounting in their business operations Not surprisingly, the issue of strategic management accounting thereby started to be studied in Vietnam since the 2010s Based on all above arguments, the author believes the necessity of studying the correlation between intellectual capital, strategic management accounting practices and corporate performance in the case study of Vietnam Vietnamese business environment will provide enough information about intellectual capital as well as strategic management accounting practices that support such research endeavours i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i Research questions and research objectives Three research questions have been proposed: Research question 1: What is the direct effect of intellectual capital components on corporate performance in Vietnamese enterprises? –2– Research question 2: What is the effect of intellectual capital components on corporate performance in the presence of strategic management accounting practices? Research question 3: How SMA practices handle each component of IC to improve corporate performance? Overall research objective: The overall research objective of this dissertation is to investigate the mediating effect of SMA practices on the relationship among IC components and three financial dimensions of corporate performance It also empirically analyses the role of SMA practices playing the management of IC components Specific research objectives: - RO1: Testing the direct impact of each of intellectual capital components on corporate performance i i i i i i i i i i i i i - RO2: Examining the direct influence of strategic management accounting practices over corporate performance i i i i i i i i i i i i - RO3: Investigating an indirect path between intellectual capital components and corporate performance through the mediating role of strategic management accounting practices i i i i i i i i i i i i i i i i i i i i - RO4: Empirically analysing which group of strategic management accounting practices are related to manage which components of intellectual capital i i i i i i i i i i i i i i i i i i - RO5: Providing additional evidence on the interconnection of intellectual capital components i i i i i i i i i i Research object and research scope The research object of this dissertation is the relationship among IC, SMA practices and corporate performance To investigate SMA practices applied in a business organization, the data is collected through questionnaire survey which is sent to SMA practitioners Moreover, the –3– unit of observation is also financial information in annual reports or financial statement reports which draw financial data on IC and corporate performance The scope of this study is limited in three aspects Firstly, this study selects Vietnam Secondly, the observed business organizations are enterprises listed on Hochiminh Stock Exchange (HoSE) and Hanoi Stock Exchange (HNX) Thirdly, since the survey related to SMA practices is conduct in the year of 2016, this study only uses 2016 financial information about IC and financial performance of the public companies Methodology This study mainly uses quantitative research method by using empirical survey data and financial data obtained from a sample of at least 127 public enterprises in Vietnam for the year of 2016 Data analysis is conducted by applying partial least squares structural equation modelling (PLS-SEM) with the support of SPSS 24.0 and SmartPLS 3.1 software packages i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i Outline of the dissertation Besides the parts of introduction and conclusion, this dissertation is organized with chapters, as follows: Introduction part Chapter 1: Literature review Chapter 2: The concepts and intellectual capital measurement models Chapter 3: Theoretical framework and hypotheses development Chapter 4: Research methodology Chapter 5: Sample characteristics and measurement scales assessment Chapter 6: Data analysis and discussion Chapter 7: Implications for managing IC by SMA practices Conclusion part –4– CHAPTER 1: LITERATURE REVIEW 1.1 Review of international studies of intellectual capital 1.1.1 Stages in developing intellectual capital (IC) as a research field Petty and Guthrie (2000) also outlined two stages in researching IC The first-stage (prior the mid-1990s) efforts typically focused on raising awareness as to why recognizing and understanding the potential of IC towards creating and managing sustainable competitive advantages is extremely essential (Petty & Guthrie, 2000) The second stage of IC research gathered further evidence, at an organizational level, focusing on the how of IC capital and labour market reacted towards the potential for IC to create value (Petty & Guthrie, 2000) According to Dumay, Guthrie, and Ricceri (2012) a third stage of IC research is emerging and thirdstage IC research focuses on considering value from IC is not just monetary but incorporates worth and importance of the products and services to customers and other stakeholders (Dumay & Garanina, 2013) i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i 1.1.2 Research trends on IC in the accounting discipline The issue of IC is studied in four perspectives, such as economic, strategic, managerial and accounting perspective (Alcaniz, GomezBezares, & Roslender, 2011) In the accounting discipline, as illustrated in Dumay et al (2012)’s paper examining 423 journal papers in terms of IC during the period from 2000 to 2009, the popular focus of IC accounting research is management accounting and external reporting but little has been published about accountability, governance and auditing i i i i i i i i i i i i i i i i i i i i i i 1.1.3 Research methods used to study intellectual capital There are five groups of research methods found It indicates that commentary/ normative/ policy is the most commonly used, followed by survey/ questionnaire and next to case study/ interviews Dumay et al (2012) highlight that the trend over the last 10 years is a steady increase in empirical work, while normative work has declined i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i –5– 1.1.4 Review of studies investigating the relationship between intellectual capital and corporate performance There are numerous pieces of research in many countries, affirming this correlation between IC and corporate performance undertaken by a variety of research methods One quantifiable and obtainable measure for IC is the VAIC, developed by Public (2000) Overall, studies using VAIC as measures of IC components have resulted in a mixture of outcomes across different countries, industries and years A range of inconsistent evidence not result in a compelling conclusion regarding the correlation between IC and corporate performance i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i 1.2 Review of international studies of SMA Since Simmonds’ first definition was introduced over 30 years ago, there is little agreement what is and what constitutes SMA Overall, the research continues to maintain four themes emphasizing on (1) how to define the concept of SMA, (2) what kinds of SMA techniques applied in a variety of industries, countries, (3) the impacts of strategy options on SMA changes and (4) strategic management accounting process Most of the published empirical research over the past 30 years has consisted of questionnaire surveys that sought to establish the extent to which specific SMA techniques have been adopted (Langfield-Smith, 2008) i i i i i i i i i i i i i i i i i i i i i i i i i i i i i 1.3 Review of studies of intellectual capital and strategic management accounting in Vietnam 1.3.1 Vietnamese context The emergence of a private sector, the development of securities markets and participation in international trading have positioned Vietnam as one of the world’s growing economies Although there are many “incremental” or “big bang” changes in Vietnamese overall organizations, including listed companies, during Vietnam’s progress of international integration, these have not actually measured or valued their i i i i i i i i i i i i i i i i i i i i i i i i i –6– IC (i.e human resources capital, structural capital, relational capital) which are generated in the past and after the impacts due to competitive pressures 1.3.2 Research on intellectual capital in Vietnam The empirical studies on IC have been conducted in many countries, including but not to limited to, North America (Bontis, 1998; RiahiBelkaoui, 2003), South Africa (Firer & Mitchell-Williams, 2003), Australia (Dumay, 2009), China (J Chen, Zhu, & Hong Yuan, 2004) and conducted in many Asian countries such as Malaysian (Bontis, Chua Chong Keow, & Richardson, 2000), Taiwan (Ming-Chin, Shu-Ju, & Hwang, 2005), Singapore (Hong Pew, Plowman, & Hancock, 2007), Thai (Saengchan, 2008) Vietnamese firms are in developing various aspects of IC, thus the need for more research in this area is evident 1.3.3 Research on strategic management accounting in Vietnam Since Vietnam adopted an open-door policy, the level of competition in the economy has been increasing significantly for most Vietnamese enterprises, because many privates, joint ventures and the wholly foreign-owned enterprises have been established in Vietnam during the last two decades (Anh, 2010) Therefore, the foreign organizations bring practical knowledge of SMA introduced to Vietnamese practitioners and scholars Not surprisingly, hence, the issue of SMA started to be studied in Vietnam since the 2010s; however, there has been little systematic documentation and analysis of recent efforts to the use of strategic management accounting practices in Vietnamese enterprises 1.4 Research gaps This study has identified three major research gaps: (1) lack of studies concerning performance implication of IC in association with the mediating role of strategic management accounting practices, (2) lack of empirical research concerning the relationship between IC and each group of SMA practices, and (3) lack of Vietnam empirical studies on IC and SMA practices i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i –7– CHAPTER 2: THE CONCEPTS AND INTELLECTUAL CAPITAL MEASUREMENT MODELS 2.1 Definition of intellectual capital Although IC has been defined from different perspectives, the only common aspect in the definition of IC is related to the fact that strategic intangible resources including information and knowledge are identified and managed to acquire competitive advantages and a sustainable creation of value with the aim of adding value to defined key stakeholders As for the components of the IC, it seems that there is a broad consensus about the existence of three primary interrelated non-financial components including human capital, structural (internal) capital and relational (external) capital i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i 2.2 Components of intellectual capital 2.2.1 Human capital According to McGregor, Tweed, and Pech (2004), human capital is more broader meanings than human resource in term of the business workforce and the more specific requirements of individual competence in the form of knowledge, skills, the innovativeness and talents of employees Furthermore, Barney (1991a) expands the definition of human capital to include training, judgment, relationships and insights of individuals and those representing the tacit knowledge embedded in the mind of employees (Bontis & Fitz-enz, 2002) i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i 2.2.2 Structural capital Bontis (2001) defines structural capital as the hardwares, softwares, databases, organization structure, patents, trademarks and everything else that employees use to support their business and processes The essence of structural capital concentrates on “the knowledge infrastructure embedded within the routines of an organization” (Bontis, 2001) including i i i i i i i i i i i i i i i i i i i i i i i i i – 33 – From the testing results of six hypotheses, this study discovers threestage value creating process and therby presents the implications for integrations of SMA practices into intellectual capital management Theoretical contributions This is the first study adding to existing resources management literature on the Resources (i.e intellectual capital) – Practices (i.e SMA practices) – Performance (i.e financial performance) link Secondly, this study also extends the research on accounting by investigating the effect of each group of SMA practices on IC components Thirdly, this study contributes to a growing body of literature providing empirical evidence on IC and SMA practices roles in improving investment efficiency i i i i i i i i i i i i i i i i i i i i i Forthly, this study also contributes into IC measurement by delivering supplementary method to measure organizational capital efficiency, which is a main part of structural capital Fifthly, this study contributes into IC research community by providing evidence from a transitional economy, Vietnam where there is no empirical study on intellectual capital until now This work is built on the combination of primary data (via surveys) and secondary data (financial data collected in financial statements) Practical managerial contributions Firstly, the outcomes of this study provide an alarming to Vietnamese managers to become more aware of the role played by intellectual capital in generating a firm’s value i i i i i i i i i i i i i i i i i i i i i i i i i i i Secondly, the interconnection of IC components reveals some practical implications It denotes in order to utilize IC more effectively, managers should establish an effective link between IC components i i i i i i i i i i i i i i i i i Thirdly, this study shows that intellectual capital does influence some aspects of management accounting, this particularly tends to i i i i i i i i i i i i i i i i i – 34 – involve the use of strategy-based and a mix of financial and non-financial measures, rather than those with an exclusive profit focus i i i i i i i i i i i i i i i i i i i i i Last but not least, in terms of integration of SMA practices into intellectual capital management, this study suggests managers to apply each technique of SMA practices for every specific purpose Limitation The first is that the sample is limited to listed companies Secondly, sample size prevented further analysis of the invariance of the hypothesized relationships across industry types Thirdly, VAIC model suffers from some inherent limitations due to the unavailability of data in some contexts and the econometric properties of the developed model i i i i i i i i i i i i i i i i i i i i i i i Lastly, due to time and scope of work restraints, the relationship between each technique of SMA practices and IC components have not reexamined by the quantative or qualitative statistic models Further research directions Future research may want to extend this study by looking at the variations of these intellectual capital proxies across different industries and by investigating other indicators of corporate performance i i i i i i i i i i i i i i i i i i i i i i i i i i i i Research is required on the usefulness and relevance of IC reporting guidelines to various stakeholders, particularly on the perceptions of stakeholders of SMEs and in the non-for-profit sector i i i i i i i i i i i i i i i i i i i i i i i i i i i New auditing procedures to validate the measurement techniques for IC need to be established as an area requiring research i i i 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Intellectual Capital: Measuring the Immeasurable? : Elsevier Wang, M (2011) Measuring intellectual capital and its effect on financial performance: Evidence from the capital market in Taiwan Frontiers of Business Research in China, 5(2), 243-265 doi:http://dx.doi.org/10.1007/s11782-011-0130-7 Ward, K (1992) Strategic Management Accounting ButterworthHeinemann: Oxford Widener, S K (2004) An empirical investigation of the relation between the use of strategic human capital and the design of the management control system Accounting, Organizations and Society, 29(3), 377-399 –x– LIST OF THE AUTHOR’S PUBLICATIONS Articles Trinh Hiep Thien (2015) “Factors Affecting the Propensity to Create Budgetary Slack – Evidence from Vietnamese Enterprises” Journal of Economic Development (English version), 22(1), 100-124 Trinh Hiep Thien, Nguyen Thi Ngoc Bich, Le Viet, Tran Thi Thanh Hai, Nguyen Thi Phuoc, Le Hoang Oanh (2014) “Association between Corporate Social Responsibility Disclosures and Firm Value – Empirical Evidence from Vietnam” International Journal of Accounting and Financial Reporting, 5(1), 212-228, URL: http://dx.doi.org/10.5296/ ijafr.v5i1.7394 Papers published in the international conference proceedings Trinh Hiep Thien (2018) “Do managers cut sticky costs to alleviate financial distress during the global economic crisis – Evidence from Vietnamese public enterprises” The 5th IBSM International Conference on Business, Management and Accounting Proceedings, Hanoi University of Industry, University of Economics in Bratislava Slovakia and University of Social Sciences Poland, ISBN 976-60272911-6-4 Trinh Hiep Thien, Doan Ngoc Que, Le Dinh Truc (2017) “Association between intangible investments and cost of equity capital – Evidence from Vietnam” The 3rd International Conference on Accounting and Finance 2017 Proceedings, University of Economics, Da Nang, Aston University, YOKOHAMA National University, Institute of Global Finance and ACCA, ISBN 978-60484-2457-2 Trinh Hiep Thien, Doan Ngoc Que, Le Dinh Truc (2016) “Endogenous association between financial reporting quality and investment in sustainable development” The 2nd International conference on Accounting and Finance 2016 Proceedings, University of – xi – Economics, Da Nang, Aston University, YOKOHAMA National University and ACCA, ISBN: 978-604-84-1563-1 Trinh Hiep Thien, Tran Anh Hoa, Le Hoang Oanh (2016) “Financial Reporting quality and investment in sustainable development – Evidence from Vietnam” The 3rd International Conference on Finance and Economics Proceedings, Ton Duc Thang University, HCMC and TOMAS BATA University IN ZLIN, ISBN 978-807454-598-6 Trinh Hiep Thien, Doan Ngoc Que, Le Hoang Oanh (2015) “Association between corporate governance and accounting conservatism – Evidence from Vietnamese public enterprises” The International conference on Accounting 2015 Proceedings, University of Economics, Da Nang, Aston University and YOKOHAMA National University, ISBN 978-604-84-0781-0 Trinh Hiep Thien (2015) “Value relevance of nonfinancial information disclosed in annual reports during the global financial crisis Evidence from Vietnamese public enterprises” The 3rd International conference on Business, Economics and Accounting 2015 Proceedings, University of Economics HCMC and International Education Organizer Training and Consulting, ISBN 978-602-84-19725-8-8 National conferences Trinh Hiep Thien (2018) “Mối quan hệ lợi thương mại chi phí sử dụng vốn chủ sở hữu – Bằng chứng từ công ty niêm yết Việt Nam (in English: Association between goodwill and cost of equity capital – Evidence from Vietnamese public enterprises)” The Economic Scientific Research Proceedings, HUTECH University, ISBN 978-604-79-1817-1 Trinh Hiep Thien, Nguyen Xuan Hung (2017) “Vận dụng phương pháp phân tích cấu trúc bình phương bé phần (PLS-SEM) – xii – nghiên cứu kế toán quản trị: Công cụ phát triển nghiên cứu tương lai (in English: The use of partial least square structural equation modelling (PLS-SEM) in management accounting research: Directions for future research)” The Conference on Accounting and Auditing Issues in Scientific Research and Business Environment Proceedings, University of Economics and Law, ISBN 978-694-735592-1 Trinh Hiep Thien, Nguyen Xuan Hung (2016) “Mối quan hệ đầu tư phát triển bền bững kết tài kiểm sốt chất lượng thơng tin báo cáo tài (in English: Association between investment in sustainable development and financial performance controlled by financial reporting quality)” The National Conference on Accounting and Auditing in the context of the International Integration and the Newly Commercial Conventions Proceedings, Hanoi University of Industry, ISBN 978-694-65-2831-9 Trinh Hiep Thien (2016) “Sự thay đổi kế toán quản trị theo hướng tiếp kế toán quản trị chiến lược môi trường kinh doanh đại (in English: The management accounting changes in direction to strategic management accounting in the contemporary business environment)” The National Conference on Accounting and Auditing in the context of Vietnamese Integration in TPP and AEC, National Economics University, ISBN 978-604-946-195-8 Research Projects Trinh Hiep Thien, Nguyen Xuan Hung (2016) “Association between financial reporting quality and the quality of sustainable development information to orientate integrated reporting – Evidence from Vietnamese public enterprises”, University-level research project, University of Economics, HCMC Le Hoang Oanh, Trinh Hiep Thien, Nguyen Bao Linh (2016) “The determinants influencing the decisions on learning professional accounting program – Evidence from undergraduate students”, – xiii – University-level research project, University of Economics, HCMC (member) Nguyen Thi Ngoc Bich, Trinh Hiep Thien, Le Viet, Tran Thi Thanh Hai, Nguyen Thi Phuoc, Le Hoang Oanh (2014) “The impacts of corporates social responsibility disclosure on firm value – Empirical evidence from Vietnam”, University-level research project, University of Economics, HCMC (member) ... “Mối quan hệ lợi thương mại chi phí sử dụng vốn chủ sở hữu – Bằng chứng từ công ty niêm yết Việt Nam (in English: Association between goodwill and cost of equity capital – Evidence from Vietnamese... like SMA approach – 26 – 6.4 Empirical results – testing of the direct correlations between SMA practices and corporate performance (H4) The majority of the results generated strongly support previous... i i i i i i i i i i i i i i i i i i i i i i i i i i – 28 – Table 6.1 Summary of the results of the third and fifth hypothesis testing – 29 – CHAPTER 7: IMPLICATIONS FOR MANAGING IC BY SMA PRACTICES