Estimating a measure of intellectual capital value to test its determinants

Abstract

Purpose – The purpose of this paper is to identify a measure of intellectual capital (IC) value which offers new research opportunities for empirical investigations and to examine the determinants of IC value. Design/methodology/approach – In total, 4,488 firm years of German companies are investigated to compare three measures of IC value: market-to-book, Tobin’s q, and long-run value-to-book (LRVTB). Findings – LRVTB is observed to be the IC value measure with the highest explanatory value. This measure provides an approach to empirically test previously untested hypotheses on IC value. The results on testing determinants of IC value indicate that IC value is positively related to leverage and motivational payments to employees and negatively associated with company size. In contrast, recognised intangible assets, research and development (R & D), company age and concentrated ownership show no significant effects. Research limitations/implications – The findings on IC value measures contribute to IC research as they offer a way to estimate IC value for testing IC-related hypotheses. The findings on IC determinants have implications for IC management as the relevant determinants can be considered for IC value creation. Originality/value – This paper responds to the challenge posed by previous IC research to develop more creative quantitative approaches to estimate IC value (Marr et al., 2003; Mouritsen, 2006) in order to test IC-related hypotheses by innovatively applying a measure from mergers and acquisitions research to IC.

Measuring the intellectual capital of italian listed companies

“…Pulic (1998) develops a Value Added Intellectual Coefficient (VAIC) which is based on the traditional concept of the value added resulting from the sum of net income plus personnel expenses. However, the VAIC approach has been criticized by Goebel (2015) for two reasons. Firstly, the VAIC approach considers human capital (proxied by labour expenses recognized in the income statement) as an investment rather than a cost.…”

“…Employing a market-based approach focused on the holistic effects of IC value, Goebel (2015) investigates the relationship between IC, proxied as the long-run value to book value (LRVTB), and IA, though finds no significant relation. Villalonga (2004) measures IC using R&D expenditure, advertising expenditure (recognized in the income statement for the year) and (capitalized) intangible assets recognized on the balance sheet, and finds that R&D and advertising expenditures are important components of IC value since there is a positive association between these variables and Tobin's q across different industry sectors.…”

“…The accounting and business management research literature reports a variety of approaches to the measurement of IC (Morariu, 2014;Goebel, 2015;Dženopoljac et al, 2016). The first group is based on a Scorecard Approach which aims to describe, but not always measure the value of, IC with respect to a range of both non-financial indicators and selected financial ratios in order to gauge specific IA, and reports by means of integrated scorecards or graphs.…”

“…In this new economy, IC is considered as the preeminent resource for generating economic wealth and growth (Guthrie and Petty, 2000;Bontis, 2003;Siboni et al,by computing the market to book (MTB) ratio (Kok, 2007). In recent years, several studies employ the Market Capitalization Approach (MCA), based on the MTB ratio, in order to estimate IC value (Brennan, 2001;Bramhandkar et al, 2007;Kok 2007;Whiting and Miller, 2008;Goebel 2015;KuoAn Tseng et al, 2015). This approach assumes that financial markets do not gauge IC value by analyzing the statement of financial position and the income statement (Sveiby, 1997a;Penman, 2009;Goebel, 2015).…”

“…In recent years, several studies employ the Market Capitalization Approach (MCA), based on the MTB ratio, in order to estimate IC value (Brennan, 2001;Bramhandkar et al, 2007;Kok 2007;Whiting and Miller, 2008;Goebel 2015;KuoAn Tseng et al, 2015). This approach assumes that financial markets do not gauge IC value by analyzing the statement of financial position and the income statement (Sveiby, 1997a;Penman, 2009;Goebel, 2015). Instead, Lal Bhasin (2012) argues that financial markets are more accurate in their valuation of companies, and any excess valuation of a company over its book value will be the correct valuation of the company's IA.…”