Intellectual capital investments: evidence from panel VAR analysis
| DOI | https://doi.org/10.1108/JIC-01-2013-0011 |
| Pages | 634-660 |
| Published date | 21 October 2013 |
| Date | 21 October 2013 |
| Author | Iuliia Naidenova,Petr Parshakov |
| Subject Matter | Information & knowledge management,Knowledge management |
Intellectual capital investments:
evidence from panel VAR analysis
Iuliia Naidenova and Petr Parshakov
Department of Financial Management,
National Research University Higher School of Economics, Perm, Russia
Abstract
Purpose – Investments in intellectual capital (IC) are often linked to competitive advantages that
improve economic profit and increase the value of a company. However, this effect is reciprocal:
companies that generate higher cash flow can invest more in IC. The purpose of this paper is to
analyze a dynamic relationship between IC components and economic profit, with a special emphasis
on industry specific effects in pharmaceutical, retail, steel, telecommunications, and service sectors.
Design/methodology/approach – Panel vector autoregression was used to deal with the mutual
influence of IC components, the lag effect, and heterogeneity. The data were taken from Compustat
database and covers the period from 2001 to 2010.
Findings – The paper proves that there is interaction between investments in the IC components
and company performance. However, there are sectoral differences: there is a positive impact
of economic profit on human capital in retail; in the steel industry a mutual influence is revealed.
Moreover, interaction between different IC components is detected in telecommunication and
steel industries.
Originality/value – This is the first study to present clear evidence of the effects of performance on
IC investment decisions. The time lag in the effects of IC investments was estimated and compared for
different industries. On the methodological side, the paper presents a rather simple method capable of
yielding results consistent with other studies and yet rich enough to be applied to an analysis
of sectoral differences in dynamic IC investment decisions.
Keywords Intellectual capital, Vector autoregression, Financial performance, Interaction effect
Paper type Research paper
1. Introduction
Nowadays the increasing in the importance of the intellectual resources of companies
is confirmed by empirical studies and is recognized in the business world (Lev, 1999).
Consequently, the financial performance of a company and its equity attractiveness for
potential shareholders are also largely driven by its intellectual capital (IC). However,
the means by which investment in IC actually allows companies to achieve success is a
debatable question. So, if a company invest some funds in intellectual resources
and expects them to create a competitive advantage, managers should measure the
return on them.
IC theory considers such key companies’ resources as employee knowledge ,
information systems, relationships with suppliers and customers, and manage ment.
It combines existing achievements in different areas, such as intangible asset
evaluation, theory of comp etitive advantage, resource-based approach to the theory of
the firm, and human capital. It also disseminates approaches to human capital analysis
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1469-1930.htm
Received 30 January 2013
Revised 7 March 2013
4 April 2013
16 April 2013
Accepted 19 April 2013
Journal of Intellectual Capital
Vol. 14 No. 4, 2013
pp. 634-660
rEmeraldGroup PublishingLimited
1469-1930
DOI 10.1108/JIC-01-2013-0011
The authors would like to thank Elena Shakina, Maria Molodchik, Anna Bykova, Marina
Oskolkova, and Dmitri Vinogradov for the valuable advice. This study comprises research
findings from the “The changing role of companies’ intangibles over the crisis” carried out
within The National Research University Higher School of Economics’ Academic Fund Program
in 2013, grant No. 13-05-0021.
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to other types of IC. There are three levels of IC analysis – macro level,
sectoral level, and micro level – and in the present paper IC is considered at the
company level.
Nowadays, the role of IC in corporate management is being actively investigated.
A number of empirical studies show that the contribution of intellectual resources in
a company’s value is significant (Bontis et al., 2000; Chen et al., 2004; Tseng and Goo,
2005; Huang and Hsueh, 2007; Kamukama et al., 2010; Chang and Hiesh, 2011).
A company’s IC is heterogeneous and is usually divided into several components. So
the interaction between these components is also of interest to researchers. A feature
that should be noted is a theoretically possible delay between the impacts of one
intellectual component on performance or others components (Tseng and Goo, 2005;
Kaplan and Norton, 1992; Chen et al., 2004). Although this delay is recognized
theoretically, empirical investigations usually ignore it in regression analysis.
Thus, researchers recognize a company’s intellectual resources as being crucial for
survival and for successful competition in the knowledge economy. However, most of
these studies are based on the assumption that the impact is completely exhausted in
one period, while theoretical assumptions run to the contrar y. Moreover, these studies
ignore the following inverse direction of relationship: company perfor mance (earnings
or economic profit) is closely connected with a company’s ability to invest, which in
turn causes the growth of intellectual resources. Consequently, in models that do not
take into account the reverse effect, there is some endogeneity, which biases the model’s
evaluation results toward giving a higher importance to IC. In the present pap er it is
attempted to solve this problem as reasonable a way as possible, and in addition to that
to take into account the mutual influence of intellectual resources and their relationship
with a company’s tangible resources.
The remainder of the paper is organized as follows. Section 2 provides the
theoretical background on IC, its str ucture and features. Section 3 describes sample
selection, variables, research model, and method of analysis. Section 5 presents
the results of this research that are discussed further in Section 6.
2. Literature review
There is no precise agreement on the definition of IC, but the majority of authors p oints
out that it helps a company to compete. Some authors include this feature just
in definition of IC: “Intellectual capital is intellectual material-knowledge, information,
intellectual property, experience, that can be put to use to create wealth” (Stewart,
1997). So the existence of a relationship between IC and a company’s wealth
seems to be obvious. Although it is still a point at issue how IC can be converted into
company wealth.
This wealth creation process can be illustrated by the input-output-outcome concept
(Cheng et al., 2010; Molodchik et al., 2012). IC is treated as part of the resources (input)
that a company invests in order to gain competitive advantage and to improve
performance (output) which then causes an increase in company value (output).
However, papers based on company value miss a lot of information about companies
which are not listed on a stock exchange. This study is focussed on the first stage, that
is, the transformation of intellectual resources into company performance.
IC is generally recognized as not being a one and indivisible company resource,
and for investigation purposes it is usually subdivided into several components.
Following previous studies in this field, three main structural components of IC are
identified: human capital, structural capital, and relational capital (Bontis et al., 2000;
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