Intellectual capital efficiency and corporate book value: evidence from Nigerian economy
| Published date | 14 May 2018 |
| Pages | 644-668 |
| DOI | https://doi.org/10.1108/JIC-09-2016-0091 |
| Date | 14 May 2018 |
| Author | Mutalib Anifowose,Hafiz Majdi Abdul Rashid,Hairul Azlan Annuar,Hassan Ibrahim |
| Subject Matter | Information & knowledge management,Knowledge management,HR & organizational behaviour,Organizational structure/dynamics,Accounting & Finance,Accounting/accountancy,Behavioural accounting |
Intellectual capital efficiency and
corporate book value: evidence
from Nigerian economy
Mutalib Anifowose
Department of Accounting, Nasarawa State University, Keffi, Nigeria
Hafiz Majdi Abdul Rashid and Hairul Azlan Annuar
Department of Accounting, International Islamic University Malaysia,
Kuala Lumpur, Malaysia, and
Hassan Ibrahim
Department of Accounting, Nasarawa State University, Keffi, Nigeria
Abstract
Purpose –The purpose of this paper is to examine the value relevance of intellectual capital (IC) by
analysing the relationship between IC efficiency (ICE) and corporate book value of listed firms on main board
of Nigeria Stock Exchange.
Design/methodology/approach –This study applies the resource-based theory in formulating two
hypotheses that guide the results analysis. By employing a two-step dynamic system generalised method of
moments (GMMs), and controlling for the possible endogeneity effect on the parameters estimated, for a
sample of 91 listed firms on main board of Nigeria Stock Exchange, this study investigates the association of
ICE and corporate book value, namely, cash flow from operation and economic value added(EVA), using data
over the 2010 to 2014 financial years.
Findings –The results show a significant positive relationship between overall ICE and corporate book
value (cash flow from operation and EVA). This study contributes to recent evidence concerning the value
relevance of IC information to investors and other interested stakeholders.
Research limitations/implications –The generalisation of t he results to smaller fi rms, in the
alternative securit ies market, may be inappro priate as study sampled l isted firms on the main board of
Nigerian Stock Exchange.
Practical implications –Those charged with governance should be concerned with the investment
and management of IC as it enhances the economic value and operating cash flow in line with the
resource-based theory.
Originality/value –This study is first to consider the ICE study across all sectors in the Nigerian economy
using modified Pulic value added intellectual capital. The study controls for heteroscedasticity and
endogeneity issues by adoption of two-step dynamic system GMMs.
Keywords Nigeria, Intellectual capital efficiency, Economic value added, Cash flow from operation,
Modified VAIC
Paper type Research paper
1. Introduction
The global economic environment has witnessed transformation from traditional tangible to
new intangible economy (Drucker, 1993) due to globalisation, exponential growth of
technological changes and deregulation in key sectors (e.g. Soete and Ter Weel, 1999; Hand and
Lev, 2003). The new economy, which has been tagged as knowledge-based economy (Drucker,
1993), has the capability to improve the competitive advantage of macro and micro organs of
nations’economies (e.g. Edvinsson and Sullivan, 1996; Drucker, 1993). Also, in attempt to
describe the new economic paradigm, Edvinsson (2002) states that “the economics of goods and
markets have given way to the economics of knowledge and the migration of knowledge”(p.1 7).
Meanwhile, from the micro economic viewpoint, the debate concerning the new economy
began in the late 1980s when the corporate book value of firms in most developed economies
constantly shrunk in relation to their market value, resulting in wide discrepancy between
Journal of Intellectual Capital
Vol. 19 No. 3, 2018
pp. 644-668
© Emerald PublishingLimited
1469-1930
DOI 10.1108/JIC-09-2016-0091
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1469-1930.htm
644
JIC
19,3
the two which contradict random walk theory of the market hypotheses (Bodie et al., 2011).
The difference has been attributed to intangible assets of the firms that are hiding in
financial reports (e.g. Edvinsson and Sullivan, 1996; Bontis, 1996; Edvinsson and Malone,
1997; Mouritsen et al., 2001) and have generally been referred to as intellectual capital (IC)
(Stewart, 1991). IC is referred to as a group of knowledge assets which belongs to an entity
and most importantly capable of improving the competitive power of the entity by adding
value to the identified stakeholders (Marr and Schiuma, 2001). Also, it has been considered
as the difference between market and book value of an enterprise (Brooking, 1997;
Edvinsson, 1997; Sveiby, 1997). Though, there are number of efforts on examination of
potential benefits of IC, Edvinsson (2013) opined that “opportunities for IC in its broadest
sense are wide open”.
Earlier studies have classified IC into three components, namely, human capital (HC),
structural capital (SC) and relational capital (e.g. Edvinsson and Malone, 1997; Bounfour,
2003; Bontis, 1996; Marr and Chatzkel, 2004). HC includes the competence, skill,
experience and intellectual abilities of the individual employees (Bounfour, 2002;
Edvinsson and Malone, 1997; Stewart, 1997; Roos et al., 1997). Customer (relational)
capital which is transitional kind of IC make up knowledge in group and networks of
knowledge resources embedded within and derived from a link of relationship (Roos et al.,
1997; Stewart, 1997; Edvinsson and Malone, 1997). SC simply consists of processes,
methods, brands, intellectual property structure and other intangibles owned by the
entity but hidden in the statement of financial position (Stewart, 1997; Edvinsson and
Malone, 1997; Bounfour, 2002).
Meanwhile, while elements of human and relational capitals could easily be understood,
there is ambiguity in what constitute the SC. Thus, after a critical examination of existing
literature and the economic environment of Nigeria, the present study further evaluates
structure capital and proposes its decomposition into three elements via innovation capital
(e.g. Joia, 2000; Edvinsson and Malone, 1997; Bontis et al., 1999), protected capital otherwise
known as intellectual property (e.g. Edvinsson and Malone, 1997; Lynn, 1998) and process
capital (e.g. Stewart, 1997; Hsu and Fang, 2009) in order to provide a lead way for scientific
framework which is still major concern in IC accounting research.
Innovation capital is considered as a direct consequence of a firm’s culture and its
capacity of creating new knowledgefrom existing one (Joia, 2000; Chang, 2007). According
to Brooking (1997), intellectual property is lawful means for safeguarding enterprise
infrastructure assets. Therefore, intellectual assets that are covered with legal protection are
called protected capital. Process capital is defined as workflow, operation processes, specific
methods, business development plans, information technology systems, cooperative culture,
etc. within the business organisations (Hsu and Fang, 2009).
Also, in the contemporary theory in finance, value maximisation has been given
adequate concern compared to traditional profit maximisation concept of classical school of
thought in determining corporate value, both in financing and investing decision making
among various stakeholders (López-Iturriaga and Rodríguez-Sanz, 2001). Hence, corporate
valuation is a relevant exercise to both entity as legal persons and various stakeholders,
particularly the investors. Thus, corporate value could be seen both from corporate book
and corporate market values (Koller et al., 2010). While the former is value placed on
corporate entity by capital market participants, the latter is value placed on company based
on its fundamentals. Meanwhile, available literature is mostly on impact of IC disclosure
on corporate market value, little is known concerning the extent in which the IC efficiency
(ICE) impacts on corporate value. Since ICE is concern with how the entity utilises its
intangible potential, the appropriate measure of performance should be on book value
creation. Hence, measures such as economic value added (EVA) and free cash flow (FCF )
would be considered appropriate, due to intangible nature of IC, for the purposes of
645
ICE and
corporate
book value
To continue reading
Request your trial