Intellectual capital and firm performance: an extended VAIC model
| DOI | https://doi.org/10.1108/JIC-12-2017-0184 |
| Pages | 406-425 |
| Date | 15 May 2019 |
| Published date | 15 May 2019 |
| Author | Ayse Elvan Bayraktaroglu,Fethi Calisir,Murat Baskak |
| Subject Matter | Information & knowledge management |
Intellectual capital and firm
performance: an extended
VAIC model
Ayse Elvan Bayraktaroglu
Istanbul Technical University, Istanbul, Turkey, and
Fethi Calisir and Murat Baskak
Department of Industrial Engineering,
Istanbul Technical University, Istanbul, Turkey
Abstract
Purpose –The purpose of this paper is to propose an extended and modified value-added (VA) intellectual
coefficient (VAIC) model, which includes intellectual capital (IC) components which were missing in the
original VAIC approach. The proposed model has been used to explore the relationship between IC and firm
performance for Turkish manufacturing firms on a more detailed level.
Design/methodology/approach –Multiple regression analysis has been employed to identify the IC
components, which predict the performance of the firm and the moderating effect of some IC components on
IC components–firm performance relationship. Data are required to calculate the IC components, and firm
performance variables have been obtained from the financial reports of the Turkish manufacturing firms for
the period 2003–2013.
Findings –According to the results for Turkish manufacturing sector innovation capital efficiency has a
moderating effect on the relationship between structural capital efficiency (SCE) and profitability, meaning,
depending on an increase in R&D expenses, the effect of SCE on profitability also increases. On the other
hand, it has been found that innovation capital efficiency has a direct impact on firms’productivity.
The results also showed that IC efficiency components have a moderating role on the relationship between
capital employed efficiency and profitability.
Research limitations/implications –There might be a time lag until the effect of R&D investments can
be observed in firms’performance. However, this lagged impact of innovation capital and also other IC
components on future firm performance has not been investigated due to concerns related to sample size.
Originality/value –The proposed model differs from the original VAIC model in three ways: it, namely,
includes two additional IC components, customer capital (CC) and innovation capital. It explores
the moderating effect of innovation capital on structural capital–firm performance relationship and the
moderating effect of IC components on employed capital–firm performance relationship. As the last
difference, it proposes an alteration in the VA calculation due to newly added IC components, CC and
innovation capital.
Keywords Firm performance, VAIC, Intellectual capital, Innovation capital
Paper type Research paper
1. Introduction
In modern economies, as a result of the transition from production economy to knowledge
economy, intellectual assets, meaning distinctive knowledge, abilities, values and methods
companies, have become the primary “economy wealth production factor”compared to
physical assets, such as land, equipment, capital, etc. (Seetharaman et al., 2002). These
intellectual assets, which can be converted into profit but are not reflected on the financial
statements of the firms, are called intellectual capital (IC) (Bontis, 1998; Hunter et al., 2005).
This description encompasses a vast area ranging from knowledge and skills residing in
employees to the knowledge that remains at the firm when the employees go home
(Chang and Hsieh, 2011). To be able to offer high valued products and services, companies
should invest in IC and use it efficiently (Chang, 2007; Wang, 2006).
Being the primary wealth production factor in modern economies, IC is an essential source
of sustainable performance and competitive advantage (Chang, 2007; Chang and Hsieh, 2011;
Journal of Intellectual Capital
Vol. 20 No. 3, 2019
pp. 406-425
© Emerald PublishingLimited
1469-1930
DOI 10.1108/JIC-12-2017-0184
Received 27 December 2017
Revised 26 July 2018
18 February 2019
12 March 2019
Accepted 21 March 2019
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1469-1930.htm
406
JIC
20,3
Bueno et al., 2014). According to the resource-based view, competitive advantage and high-level
performance can only be achieved by owning strategic resources, especially intangible
ones (Hsu and Wang, 2012), and appropriate use of these resources (Riahi-Belkaoui, 2003).
Strategicresources might be tangible or intangible. The morevaluable, scarce, untransferable,
inimitable and unreplaceable these resources are, the more important they become for ensuring
competitiveness and high-level performance. All these attributes that are used to describe the
features of strategic resources are also ascribed to IC in the literature (Molodchik et al., 2012;
Riahi-Belkaoui, 2003). Being an intangible strategic asset, IC is anticipated to have
a linkage to high-level firm performance (Riahi-Belkaoui, 2003). In other words, if IC is a
resource providing a competitive advantage, it should also have a positive effect on the firm’s
financial performance.
Recognition of the importance of IC in firm performance and competitiveness brings the
need to manage it effectively. As part of effective management, given the intangible nature of
IC, identifyingand measuring IC is a difficult task (Chang and Hsieh,2011). In this case, firms
undoubtedly require using certain methodologies to determine and measure the use of IC.
One of these methodologies was, developed by Pulic (1998), the value-added (VA) intellectual
coefficient (VAIC). VAIC is a standardized, logical and easy to use IC efficiency measuring
method (Shiu,2006b). It uses financial data retrievedfrom financial reports for the calculations
of corporate value creation efficiency of the firms, which also renders it possible to compare
firms with each other( Maditinos et al., 2011). VAIC methodology focuses on how muchVA is
created by the capital employed (CE) and IC owned by the firm (Pulic, 2000).
There is a growing body of research, which uses VAIC as an IC performance measure for
the comparison of companies and as a predictor for company performance. However, since
VAIC methodology addresses IC through two components only, human capital and
structural capital (SC), namely, there are also some studies modifying and extending VAIC
methodology to address some other IC components, which were neglected by the original
VAIC approach, such as customer capital (CC) and innovation capital (Nazari and
Herremans, 2007; Ulum et al., 2014; Vishnu and Gupta, 2014; Phusavat et al., 2011). However,
it seems that in none of these extended VAIC studies, the necessary modifications in the
calculation of VA due to newly added IC components have been made. In case of addition of
new IC components into the VAIC model, in the VA calculation, proxies of these IC
components should be treated as investments instead of costs.
The objective of this study is to propose an extended and modified VAIC model that
includes IC components, which the original VAIC approach fails to handle separately, to
explore the relationship between IC and firm performance on a more detailed level. Financial
data from Turkish manufacturing sector have been used for this purpose. As financial
performance indicators in the statistical models, return on asset (ROA), return on equity
(ROE) and assets turnover ratio (ATO) have been used in the analysis. As market
performance indicator MB (market value/book value ratio) has been adopted. Results from
the proposed model have been compared to the original VAIC approach’s results.
The remaining part of the paper proceeds as follows: next section introduces IC
components and discusses the relationship between IC and firm performance, VAIC as a tool
to measure IC, and its extended versions in the relevant literature. This is followed by the
conceptual framework for the proposed model and results obtained from the application
of the proposed model to the Turkish manufacturing firms are presented in Section 4.
The paper concludes with discussion and conclusion.
2. Conceptual framework
2.1 Intellectual capital and its components
Even though there seems to be an accord on IC’s significant contribution in value creation
(St-Pierreand Audet, 2011), a generallyaccepted definition of IC is stilllacking. However, most
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IC and firm
performance
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