Do intellectual capitals matter to firm value enhancement? Evidences from Taiwan
| Pages | 725-743 |
| DOI | https://doi.org/10.1108/JIC-10-2019-0235 |
| Date | 27 July 2020 |
| Published date | 27 July 2020 |
| Subject Matter | Information & knowledge management,Knowledge management,HR & organizational behaviour,Organizational structure/dynamics,Accounting & Finance,Accounting/accountancy,Behavioural accounting |
| Author | Yensen Ni,Yi-Rung Cheng,Paoyu Huang |
Do intellectual capitals matter to
firm value enhancement?
Evidences from Taiwan
Yensen Ni and Yi-Rung Cheng
Department of Management Sciences, Tamkang University,
New Taipei City, Taiwan, and
Paoyu Huang
Department of International Business, Soochow University, Taipei City, Taiwan
Abstract
Purpose –The purpose of this study is to find evidence of the impact of intellectual capital on firm value, and,
in turn, enhance the existing literature which lacks consensus on it. By employing some distinctive proxies for
human capital, innovation capital, customer capital and process capital, this study might provide valuable
information for firms to make strategic decisions.
Design/methodology/approach –This study uses Tobin’s Q to represent firm value and various variables
to be the proxies for intellectual capitals. By utilizing firm-year observations, this study applies panel data
models first, and then Petersen regression models for further investigation to enhance the robustness of the
empirical results.
Findings –Firm value is affected positively by the average net profit per employee as well as goodwill and
intangible assets. This is because firms having employees with abundant knowledge will possess advantage
for innovation, and the excellent reputation, a part of goodwill for oriental firms, would encourage people to
consume and invest more.
Research limitations/implications –The constraint of data resource is the main limitation. With the
limited scalesand as an emerging market of Taiwan Stock Exchange, it is not confirmed whether the results are
appropriate for the developed markets. Nevertheless, firms should make efforts on developing intellectual
capital and corporate governance for operating businesses with competitiveness and safety.
Originality/value –Since capable employees enhance the innovation, innovation improves customer’s
satisfaction and good customer relationship increases the sales; this study illustrates that for expanding
businesses, firms should make more efforts on developing intellectual capital.
Keywords Intellectual capital, Financial performance, Corporate governance, Firm value
Paper type Research paper
1. Introduction
With the advent of information and virtual economy, the value of intangible assets seems to
surpass the value of tangible assets gradually, which results in the issues related to
intellectual capital being increasingly important nowadays (Chiucchi and Dumay, 2015;
Dumay, 2016;Passaro et al., 2018). Edvinsson and Malone (1997) claim that intellectual capital
denotes “the possession of the knowledge, applied experience, organizational technology,
customer relationships, and professional skills.”In other words, intellectual capital is the sum
of the intangible and knowledge-related resources that an organization utilizes to generate
value (Kianto et al., 2017). As a matter of fact, intellectual capital becomes at least as important
as financial capital in providing truly sustainable earnings (Pourzamani et al., 2012) and
provides some directions for the future development of enterprises (Mart
ın-de Castro, 2014).
However, firm performance is mainly measured by tangible assets in traditional accounting,
which fail to reflect the value created by intangible assets, such as intellectual capital, in
enterprises (Yallwe and Buscemi, 2014). Thus, the company needs to make an effective and
comprehensive intellectual capital disclosure, which supports the stakeholders’evaluation
process (Giacosa et al., 2017).
Do intellectual
capitals
matter?
725
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1469-1930.htm
Received 6 October 2019
Revised 4 January 2020
19 February 2020
19 May 2020
Accepted 23 June 2020
Journal of Intellectual Capital
Vol. 22 No. 4, 2021
pp. 725-743
© Emerald Publishing Limited
1469-1930
DOI 10.1108/JIC-10-2019-0235
The issue of the relationship between intellectual capital and firm value has been
discussed, but with no consensus in the existing literature. For example, intellectual capital is
found not only to positively influence the profitability and corporate return (Jord~
ao and de
Almeida, 2017) but also to play a greater role in creating value, efficiency and financial
performance of firms (Chen et al., 2005;Chu et al., 2011;Kamath, 2008;Pal and Soriya, 2012;
Powell, 2003;Tan et al., 2007). Even further, Hussinki et al. (2017) find that the firms
characterized with high levels of intellectual capital and high use of knowledge management
practices are likely to have better performances.
On the contrary, numerous papers fail to generate adequate evidences to demonstrate
this positive relationship (Chan, 2009a,b;Ghosh and Mondal, 2009;Ozturk and
Demirgunes, 2007). Following this line of argument, we investigate the relationships
among the impacts of intellectual capital elements on firm value. The purpose of this study
is to find the evidence about this issue by employing diversified and even idiosyncratic
proxies to enhance the existing literature. Furthermore, this study considers the variables
related to corporate governance and financial performance as controlling variables because
thesetwovariablesmighttendto influence firm value, as seem after surveying relevant
studies in Section 2.4.
In this study, several important findings are revealed. First, the average net profit per
employee positively affects firm value, meaning that the value of human capital would be
enhanced if the employees have various skills and abundant knowledge. This finding would
be beneficial for the firm to enhance know-hows, technology diffusion and R&D. For the high-
tech-centered firms in particular, creative and productive employees are the advantage for
innovation and competition. Only the enterprises with capable employees can improve firm
values constantly and survive in the highly competitive business world. Second, goodwill and
intangible assets have positive impacts on firm value, indicating that goodwill might be
beneficial for firms to earn excess profits. Different from the Western companies creating
goodwill by merger, most of the oriental Chinese-culture-influenced enterprises believe that
good reputation could encourage people to increase consumption and investment. Since the
present value of future abnormal profits may be reflected by goodwill and intangible assets,
firms would endeavor to create goodwill to enhance their values in return.
This study may contribute to existing literature in several aspects. First, with distinctive
variables as the proxies, this study investigates whether various intellectual capital elements,
including human, innovation, customer, and process capitals, would affect firm value in
somewhat different way from former studies. Eventually, this study provides more solid
results to enhance the present literature. Second, each element of intellectual capital would
affect firm value in certain way, indicating that intellectual capital is relevant for the
enhancement of firm value. Capable employees would enhance the innovation, innovation in
product and service would improve the satisfaction of customer, and good customer
relationship would increase the sales. Therefore, enterprises should make more efforts in
developing the intellectual capital for expanding businesses. Third, this study uses two
different models to conduct the empirical tests and reveals more robust empirical results,
which might differ from the past studies.
This study consists five sections. Section 2 describes the literature review and proposes
hypotheses. Section 3 introduces methodology applied in this study. Section 4 shows the
empirical findings and analysis. Section 5 reveals the conclusion.
2. Literature review and hypotheses proposed
For the objective of familiarity with relevant studies, a survey of relevant literature is
established, which relates to firm value, intellectual capital, intellectual capital and firm value,
as well as corporate governance, financial statements and firm value in this study.
JIC
22,4
726
To continue reading
Request your trial