Investigating the value and efficiency of intellectual capital
| Date | 24 April 2007 |
| DOI | https://doi.org/10.1108/14691930710742844 |
| Published date | 24 April 2007 |
| Pages | 272-287 |
| Author | Paula Kujansivu,Antti Lönnqvist |
| Subject Matter | Accounting & finance,HR & organizational behaviour,Information & knowledge management |
Investigating the value and
efficiency of intellectual capital
Paula Kujansivu and Antti Lo
¨nnqvist
Tampere University of Technology, Tampere, Finland
Abstract
Purpose – This paper seeks to provide an empirical view of the present state of intell ectual capital (IC) in
Finnishcompanies. It alsoexamines the relationship betweenthe concepts valueof IC and efficiencyof IC.
Design/methodology/approach – Calculated Intangible Value (CIV), which measures the
monetary value of IC, and Value Added Intellectual Coefficient (VAIC
TM
), which describes how a
company’s IC adds value to the company, were applied to approximately 20,000 companies per year
during the period 2001-2003 and studied using correlation analysis.
Findings – Value and efficiency of IC are described in 11 industries in both SMEs and large
companies. The theoretically unclear relationship between the value and efficiency of IC remains
vague even after the empirical analysis. Calculating the value of IC in relative terms by dividing the
value of a company’s IC by the value of its tangible assets was found to be illustrative in comparing
different industries.
Research limitations/implications – The measures used are based on financial statement
information and their validity is questionable. However, the large set of data examined has a positive
effect on the reliability of the study.
Practical implications – The results in this paper highlight the absolute or relative value, and thus
importance, of IC for a company, depending on the industry.
Originality/value – The industry level analysis of IC and the implementation of scarcely
used CIV measure in a large set of companies enhance the existing knowledge ofthe measurement
of IC. The analysis of the relationship between CIV and VAIC
TM
measures has not previously been
done.
Keywords Intangible assets,Intellectual capital, Performance measures, Finland
Paper type Research paper
Introduction
Intellectual capital (IC) consists of the non-physical sources of value related to
employees’ capabilities, organisations’ resources and way of operating and the
relationships with their stakeholders (Lo
¨nnqvist, 2004). It is considered important for
the competitiveness of many companies regardless of the industry. However, the topic
is especially important for knowledge-intensive companies, as most of their key
resources are intangible (see, e.g. Stewart, 2001; Sveiby, 1997). Because of the
importance of IC, companies and their stakeholders need information about it. For
example, investors need to determine the value of a company as precisely as possible –
and the value of IC may constitute a great portion of it. Managers also need information
about their company’s IC.
Since IC is immaterial and non-physical in nature, measuring it is difficult.
Nevertheless, some methods for measuring IC have been developed in recent years.
Many of the measures are non-financial and thus not comparable between companies.
However, there are also financial (i.e. monetary) measures that can be compared
between companies. These methods include, e.g. Calculated Intangible Value (CIV)
The current issue and full text archive of this journal is available at
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JIC
8,2
272
Journal of Intellectual Capital
Vol. 8 No. 2, 2007
pp. 272-287
qEmerald Group Publishing Limited
1469-1930
DOI 10.1108/14691930710742844
(Stewart, 1997) and Value Added Intellectual Coefficient (VAIC
TM
) (see, e.g. Pulic, 2000,
2004). CIV can be used to measure the value of IC while VAIC
TM
can be used to
measure the efficiency of IC within a company, i.e. to describe how a company’s IC
adds value to the company.
The introduction of these monetary IC measurement methods provides new
opportunities for companies and their stakeholders. For example, they provid e a
concrete basis for comparing the IC of different companies. This also offers intrigui ng
opportunities for researchers. However, the measures are quite new and there is not
much experience of applying them in practice. There are also questions regarding the
validity of the measures. This is mainly due to the fact that the measures are based on
financial statement information but the balance sheet captures only a small portion of
IC. On the other hand, a company’s profits are created as a result of all its existing
resources – including IC. Thus, financial statement information in fact includes the
effects of IC. This paper contributes to this ongoing discussion by providing additional
experience of using the measures in practice.
This paper describes the present state of IC in Finnish companies by applying the
measurement methods described above. Finland is an interesting case for examining
the value and efficiency of IC. It was named the most competitive country in the world
by the World Economic Forum in 2003, 2004 and 2005. A key factor in the country’s
competitiveness is likely to be the IC of Finnish companies. Bontis (2004), using his
NICI index approach, determined that Finland has the fourth highest level of IC out of
fifteen industrialised countries studied. According to another study, Finland used its IC
the third most efficiently in Europe in 2001 (International Business Efficiency
Consulting, LLC, 2003).
Presently, virtually nothing is known about the state of IC in Finnish industries and
companies. This paper describes an exploratory study aiming, first, to ascertain the
value and efficiency of IC as well as their relationship in Finnish companies, and
second, to assess the empirical relationship between the concepts “value of IC” and
“efficiency of IC”. The empirical examination is based on a large set of data. CIV and
VAIC
TM
measures are applied to around 20,000 Finnish companies per year over a
period of three years. The results are analysed in eleven industries. The methods and
the data are described more thoroughly later.
How and why to measure the value and efficiency of IC?
Defining the value and efficiency of IC
According to Lev (2001):
Intangible assets are non-physical sources of value (claims to future benefits) generated by
innovation (discovery), unique organisational designs, or human resource practices.
In this paper, the value of IC is defined as the monetary value of a company’s total
intangible resources in a given time.
There are two main ways of determining the value of a company: based on the
company’s financial statement (balance sheet) or based on its market value (stock
market). Nowadays, the two values differ quite a lot (see, e.g. Andriessen, 2004;
Edvinsson and Malone, 1997). Market value is often much higher than book value. One
explanation among others for the gap is the companies’ IC, which is for the most part
not included in the financial statement. For example, the value of customer
Value and
efficiency of IC
273
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