Does VAIC affect the profitability and value of real estate and infrastructure firms in India? A panel data investigation
| Pages | 309-331 |
| DOI | https://doi.org/10.1108/JIC-03-2019-0053 |
| Published date | 21 February 2020 |
| Date | 21 February 2020 |
| Author | Harish Kumar Singla |
| Subject Matter | HR & organizational behaviour,Accounting & Finance,Information & knowledge management,Behavioural accounting,Organizational structure/dynamics |
Does VAIC affect the profitability
and value of real estate and
infrastructure firms in India?
A panel data investigation
Harish Kumar Singla
School of General Management,
National Institute of Construction Management and Research, Pune, India
Abstract
Purpose –This study aims to investigate whether intellectual capital (IC) and its subcomponents enhance
value and improve the profitability of real estate (RE) and infrastructure (INF) firms in India. In this study, IC is
measured through the value-added intellectual coefficient (VAIC) model. The study further extends the VAIC
model by incorporating an additional component of social welfare efficiency (SWE).
Design/methodology/approach –The studyuses the panel data investigation based on the data of 63 firms
(22 RE and 41 INF firms), for a period of 10 years (2008–2017). The dependent variables in the study are return
on assets (ROA) and market price to book value ratio (PB), whereas the independent variables are VAIC and its
components. The panel is tested for stationarity, heteroscedasticity and multicollinearity problems. Finally, to
account for heteroscedasticity and endogeneity, Arellano and Bond’s (1991) panel regression estimator with
robust estimates are used.
Findings –The findings of the study suggest that IC has a significant influence on the profitability and value
of infra firms, whereas capital-employed efficiency (CEE) positively affects the profitability of both RE and
INF firms.
Originality/value –The study is an attempt to find the effect of IC and its components on profitability and
value of RE and INF firms in India. The author has also extended the VAIC model, which was introduced by
Pulic (2000), by adding an additional IC component, i.e. SWE. The study uses Arellano and Bond’s (1991) panel
regression estimator with robust estimates, which helps produce robust results.
Keywords Infrastructure, Intellectual capital, Real estate, Human capital, VAIC, Innovation capital, Social
capital, Relational capital
Paper type Research paper
Introduction
Intellectual capital (IC) is considered an essential intangible resource for business success,
and it is seen as the primary source of sustainable competitive advantage (Teece et al., 1997;
Choo and Bontis, 2002;Subramaniam and Youndt, 2005). IC is a crucial resource that needs to
develop to effectively implement corporate strategy, acquire and maintain a long-lasting
competitive advantage and improve corporate performance (Martinsons and Hosley, 1993;
Lettieri et al., 2004;Murray and Carter, 2005;Hume and Hume, 2008). The studies in the past
have measured the effect of IC on performance of in knowledge-intensive industries (Peng
et al., 2007) such as information and technology, pharmaceutical and high-technology-driven
firms; however, limited attention has been paid to the firms in the core sectors like
manufacturing, real estate (RE) and infrastructure (INF). Britto et al. (2014) in their study
notes that “Although IC concept is well known, is has not been applied or empirically tested
much for tangible firms, classified as those from industrial sectors or less dependent on
knowledge for creating value. Most research focuses on sectors where tangibles are less
important than intangibles.”
All developing nations face huge INF gap, and this can only be filled by attracting new
investment in the sector. To attract investment in the sector (both domestic and foreign direct
VAIC’s effect
on value of
RE and INF
firms in India
309
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 21 March 2019
Revised 20 May 2019
9 September 2019
4 December 2019
Accepted 6 December 2019
Journal of Intellectual Capital
Vol. 21 No. 3, 2020
pp. 309-331
© Emerald Publishing Limited
1469-1930
DOI 10.1108/JIC-03-2019-0053
investment), the firms in the RE and INF sector must develop capabilities and efficiencies.
Therefore, during the past decade or so, these RE and INF firms, which were considered
earlier as “non-research and development (R&D) firms, with no real focus on innovation,”
have given a lot of importance to IC and its components. They are doing so by preserving its
human resources, taking due care of its customer base and investing in R&D activities in
search of new construction materials and technology. These efforts are yielding good results,
as can be witnessed in terms of faster completion of projects with superior quality
workmanship. Therefore, this paper aims to examine whether IC and its components bring
value and improve profitability of RE and INF firms in India. To measure IC, the study used
an empirically tested value-added intellectual coefficient (VAIC) model introduced by Pulic
(2000). This model measures IC resources into efficiencies and divides them into three
components. The spending on social welfare activities can result in creating additional value
and profitability for firms. Hence, the paper also extended the existing VAIC model by
introducing social welfare efficiency (SWE) in the model.
The RE and INF firms are selected for the study, as they are the backbone of any
economy and more so for a developing nation like India. Both RE and INF firms are of
great importance to the growth of a nation. As per the report of KPMG (2016), India will
become the third largest construction market globally by 2030, with its contribution to GDP
increasing to 15 percent by 2030. The size of the India’s construction industry is expected to
be US$1tn by 2025, and the construction industry is poised to become the largest employer
by 2022, employing more than 75 million people. On the whole, the sector is advancing at a
rapid pace, and it will continue to do so. Hence, the future is presenting huge opportunities,
andthefirmsthatwillbeabletocreatecompetitiveadvantagethroughICandits
components will be able to rip the benefits. As a result, the paper attempts to fills the gap in
the literature by examining which components of IC improve the profitability and create
value for RE and INF firms in India.
Theoretical background
IC is the set of critical resources used by firms to facilitate productive activities and generate
economic rents (Peng et al., 2007). Roos et al. (2005) define IC as all non-monetary and non-
physical resources that are fully or partly controlled by the organizations and that contribute
to the organization’s value creation. The resource-based view maintains that, whenever firm
resources are valuable, rare, inimitable and non-replaceable, they establish a source of
sustainable competitive advantage through the implementation of value creation strategies
(Ferreira and Fernandes, 2017). These resources can be broadly classified into three
components of IC, i.e. human capital (HC), structural or organizational capital (SC) and
relational capital (RC) or customer capital (Bontis et al., 2015;Nimtrakoon, 2015;ul Rehman
et al., 2011;Wang et al., 2014).
HC relates to creation and preserving the skill and knowledge of employees and highlights
the knowledge, competence, innovativeness, commitment and wisdom of employees
(Ahangar, 2011;Bontis, 1998;Johnson, 1999;Morris, 2015). SC refers to the systems and
procedures, R&D and strategy-driven efforts of organizations that enhance its capabilities. It
includes the firms’most valuable strategic assets, such as organizational capabilities, culture,
processes, patents, copyrights, trademarks, databases and so on (Ahangar, 2011;Denicolai
et al., 2015;Janosevic and Dzenopoljac, 2012;Johnson, 1999). RC refers to the management of
key relationships and the knowledge obtained through the establishment of relationships
with external stakeholders (Johnson, 1999;Kweh et al., 2014;Yu et al., 2015).
It is important for a firm to not only identify the IC resource, but to measure it and also
examine its role in value creation and improving profitability. Andriessen and Stam (2005),
Bontis (1998),Bontis et al. (2000),Bontis (2001),Bontis et al. (2007);Edvinsson and Malone
(1997),Edvinsson (2005),Sullivan (1998) and Spender (1996) are pioneers in qualitative IC
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