Intellectual capital in tangible intensive firms: the case of Brazilian real estate companies
| Published date | 08 April 2014 |
| Date | 08 April 2014 |
| Pages | 333-348 |
| DOI | https://doi.org/10.1108/JIC-10-2013-0108 |
| Author | Daniel Pitelli Britto,Eliane Monetti,Joao da Rocha Lima Jr |
| Subject Matter | Information & knowledge management,Knowledge management |
Intellectual capital in tangible
intensive firms: the case of
Brazilian real estate companies
Daniel Pitelli Britto, Eliane Monetti and Joao da Rocha Lima Jr
Real Estate Research Group,
Escola Politecnica da Universidade de Sao Paulo, Sao Paulo, Brazil
Abstract
Purpose – The purpose of this paperis to clarify whether valuecreated by real estate (RE) companies
(tangible intensive firms) can be evaluated better using intellectual capital (IC) elements (human,
structural and physical assets) or traditional accounting measures of efficiency (ROIC and profit margins).
Design/methodology/approach – Correlations and cross-sectional OLS regressions with robust
standard errors were used to find relationships between variables explainingvalue creation. Data were
collected from 2007 to 2011 for Brazilian RE firms. To measure market risk, the authors used a new
approach to deal with low liquidity. VAIC and I
j
ratios were used as IC proxies even though both
have limitations.
Findings – IC has a significant inverse relationship with market value. The more valuablecomp anies
showed lower levels of IC except for CEE which explains value as much as ROIC. Also, IC does not
influence market risk caused by size and leverage and does not explain ROIC.
Research limitations/implications – The limitations of this study result from time and proxy
variables. IC was measured by a VAIC model using data from a period of intense volatility.To increase
the robustness of the conclusions, other variables should be used as proxies for IC and the results
compared. The VAIC model has certain deficiencies in measuring IC.
Practical implications – Managers and investors in the RE sector need to change the way they
create value and measure value creation. The low level of HC explaining either ROIC or market value is
a signal of low innovation which, combined with high CEE, induces a sho rt-term outlook.
Originality/value – This study opens discussion of IC in the Brazilian RE sector. A new methodology
for identifying value creation is necessary for better evaluation and determin ing the fair value of firms.
Keywords Intellectual capital, VAIC, Real estate, Real estate firms, Tangible intensive firms
Paper type Research p aper
Introduction
A variety of models have been designed to evaluate intellectual capital (IC) and its
components in knowledge-based firms, especially in intangible intensive cor porations
such as pharmaceuticals and IT firms. However, firms using intensive capital to create
value have had few approaches in the IC community.
Knowledge companies create value from their knowledge assets suc h as human
capital and innovation (Sullivan and Sproule, 1993; Sullivan and O’Shaughnessy, 1999;
Sullivan, 1998, 1999a, b), but they may still us e large amounts of physical capital. Since
IC and physical assets can create barriers, and therefore also competitive advantages,
both knowledge and capital assets can be concurrently impor tant.
Although this concept is well known, is has not been applied or empirically tested
much for tangible firms, classified as those from industrial sectors or less de pendent on
knowledge for creating value. Most research focusses on sectors where tangibles are
less important than intangibles.
This paper aims to clarify whether real estate (RE) companies (tangible intensive
firms) can be better evaluated using their IC components (human, structural an d
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1469-1930.htm
Received 29 October 2013
Revised 2 March 2014
Accepted 2 March 2014
Journal of Intellectual Capital
Vol.15 No. 2, 2014
pp. 333-348
rEmeraldGroup Publishing Limited
1469-1930
DOI 10.1108/JIC-10-2013-0108
333
IC in tangible
intensive firms
physical assets) or traditional accounting measures of efficiency such as return on
invested capital (ROIC) and profit margins, to explain the value created by these firms.
Traditional accounting reports and indicators lack the potential to deter mine the
fair value of either tangible or intangible firms. Using the market-to-book indicato r to
measure the distance between book value and market value , it is noted high ratios for
both kinds of firms.
In developing countries, the issue of what creates value and how to measure it is
crucial for directing new investments. Known as non-R&D companies, firms in
developing countries have in recent years invested greater efforts in IC components,
especially in Latin America where natural resources remain the mos t important driver
of value in almost all countries.
In Brazilian companies, the RE sector drives development and can be used as an
indicator of growth and government incentives. This secto r is known as tangible
intensive, although the dispersion of value created in this market in recent years has
triggered discussion on how to identify value drivers what cannot be explained only
through capital access and use.
For this reason, the first gap in literature is test if financial indicators really do not
explain value in tangible firms. The second gap is to see what parts of IC can better
explain the value generated by tangible companies, especially capital intensive companies
such as RE firms.
Why study IC in RE?
Ever since the 1960s, the RE sector in Brazil has represented more than 10 percent of
GDP (IBGE – Brazilian Economy and Census Bureau), with large companies providing
services either to the government (infrastructure) or private cust omers (residential and
commercial). However, before 2005, BMF and BOVESPA, the Brazilian stock exchange,
did not have any listed RE companies.
Between 2005 and 2008, 27 RE companies went public, raising more than US$8
billion. In the same period, the market-to-book ratio (I
j
) reached an average of 4.
Although this seems an expected ratio denoting value creation, unc lear further studies
and simulations found a ratio of two as the most feasible for the sector at that time
(Rocha Lima and Greg
orio, 2006; Rocha Lima, 2007).
The average results of I
j
, Value Added Intellectual Capital (VAIC), IRE
(the RE stock market index) and ROIC between 2007 and 2011 are found in
Figure 1. The market-to-book average ratio (I
j
) drops to 1.41 in March of 2012,
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
2007 2008 2009 2010 2011
ROIC
IjVAIC IRE ROIC
Ij
- VAIC - IREx10
Figure 1.
Financial and IC
performance of Brazilian
real estate companies
(2007-2011)
334
JIC
15,2
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