Human Capital -Explanations for voluntary disclosure of human capital in annual reports

Abstract

Background: Nowadays, many corporations claim that their employees are the company’s most valuable resource. Therefore, it may seem odd that most companies choose not to disclose much voluntary information concerning human capital in their annual reports, even though most agree that their employees contribute to the company’s competitive advantage. Especially knowledgebased companies, whose core assets are not shown on the balance sheet, are expected to have incentives for wanting to disclose information concerning human capital in their annual reports. Purpose: The purpose of this study is to identify and discuss the explanations behind why knowledge-based companies, with focus on three well-known Swedish auditing firms, choose to disclose voluntary information on human capital in their annual reports of 2010/2011, and to see if the explanations vary with company size. Methodology: This bachelor thesis has been conducted as a comparative case study of one relatively smaller and two relatively larger companies in the auditing industry. The case study has been qualitative and the empirical findings have been collected through semi-structured interviews with the participating companies. Findings: We find that auditing firms provide several explanations for their human capital disclosure. All of the companies claim that one explanation for this disclosure is that it enables them to show that their employees are such an important resource for the business and for the company’s survival. They also explain that human capital disclosure enables them to show their employees that the company cares about them. Further, they explain that human capital disclosure increases their trustworthiness. From these explanations, we can see that all of the companies address their human capital information to different stakeholders. Moreover, we find that the companies’ explanations do not vary with company size. Suggestions to future studies: Future studies could choose to repeat this study but focus on another knowledge-intensive industry, and the results could then be compared to those of this bachelor thesis. It could also be interesting to do a comparative study between auditing firms in different countries on why they disclose voluntary information on human capital.