The Impact of Corporate Governance Mechanisms on Intellectual Capital Disclosure: Evidence from Non-Financial Listed Companies in Sri Lanka

The purpose of this paper is to examine the impact of Corporate Governance (CG) mechanisms on Intellectual Capital (IC) disclosure of non-financial listed companies of Colombo Stock Exchange (CSE). The study is conducted on a sample of 80 listed companies selected based on the highest market capitalization across six industry sectors of CSE. A content analysis is used to identify the level of IC disclosure and the agency theory and resource dependency theory are employed to develop hypotheses to examine the impact of CG mechanisms on the IC disclosure level. The results indicate that the Company Size has a significant impact on the level of IC disclosure. However, the findings also indicate that Independent Directors, Company Leverage, Company Performance, CEO Duality, and Block-holder Ownership do not have a significant impact on IC disclosures. This is an indicative symptom of the inefficiency associated with the CG mechanisms. Descriptive statistics show that the average IC disclosure level is about 32.4%. The content analysis shows that most Sri Lankan companies do not have IC disclosures as a separate section in their annual reports. The result further shows that a high variation of disclosure level among companies indicating a lack of consistency in adopting disclosure practices by the firms. The findings are particularly useful to policymakers, regulators, and corporate managers in identifying poor governance practices and the level of IC transparency of Sri Lankan firms. The paper also contributes to the international debate on corporate governance practices and mechanisms that can improve IC disclosures of listed firms in the emerging stock markets.