Measuring the intellectual capital of Italian listed companies
| Published date | 09 October 2017 |
| Date | 09 October 2017 |
| Pages | 710-732 |
| DOI | https://doi.org/10.1108/JIC-08-2016-0083 |
| Author | William Forte,Jon Tucker,Gaetano Matonti,Giuseppe Nicolò |
| Subject Matter | Information & knowledge management,Knowledge management,HR & organizational behaviour,Organizational structure/dynamics,Accounting & Finance,Accounting/accountancy,Behavioural accounting |
Measuring the intellectual capital
of Italian listed companies
William Forte
Department of Management and Innovation Systems, University of Salerno,
Salerno, Italy
Jon Tucker
Department of Accounting, Economics and Finance,
University of the West of England, Bristol, UK
Gaetano Matonti
University of Salerno, Salerno, Italy, and
Giuseppe Nicolò
Department of Management and Innovation Systems, University of Salerno,
Salerno, Italy
Abstract
Purpose –The purpose of this paper is to investigate the relationship between intellectual capital (IC),
measured in terms of the market to book (MTB) ratio, and potential key determinants of IC value such as
intangible assets (IA) and a range of other factors.
Design/methodology/approach –The study is conducted for a sample of 140 Italian corporationsover the
period 2009-2013. Applying a holistic market-based approach, the relationship between IC value and selected
determinants from the extant literature is tested. Five hypotheses are tested using a pooled OLS regression
model, while controlling for time. ROE is employed as a useful firm profitability indicator from the
perspective of an equity investor. Moreover, four robustness tests are undertaken.
Findings –The results show that IA, profitability, leverage, industry type, auditor type, and family
ownership positively affect IC value, whereas SIZE and AGE negatively affect IC value. Moreover, the
findings of the robustness tests suggest that all firms, and not just knowledge-intensive business service
industry firms, manage knowledge.
Research limitations/implications –The validity of the findings is limited to the Italian context, as the
study focuses on a sample of companies listed on the Milan Stock Exchange, all of which prepare their
individual financial statements according to IFRS. Further limitations are related to theuse of market value in
the short term, as it is influenced by market volatility. The study may allow academic researchers to
investigate the impact of other non-accounting sources of information on market value within a
multidisciplinary perspective.
Practical implications –This paper also has implications for managers and practitioners. The findings
suggest thatmanagers should not take for grantedthat firm growth (an increase in SIZE) alonewill lead to an
increasein IC value, in the absenceof a consistent IC-orientedinvestment strategy.Managers should alsoavoid
smoothingtheir IC investmentas the company grows, in orderto maintain a stable MTB ratio.Further, standard
setters should seekto explore better means of disclosing non-accounting information relatingto IC value.
Originality/value –This paper contributes to the IC literature as it is the first study which applies the
market capitalization approach to analyze IC value determinants in the Italian context, within the framework
of IFRS. The findings reveal some interesting relationships between the MTB ratio and recognized intangible
investments, which are found to be insignificant in previous studies, confirming that, through the holistic
effect, the MTB ratio may be a good proxy for IC.
Keywords Italy, Intellectual capital, Intangible assets, Listed companies, Market to book ratio
Paper type Research paper
1. Introduction
Over the decades, the world economy has moved from an industrial to a knowledge
economy (Guthrie and Petty, 2000; Marr et al., 2004; Lev et al., 2005; Dženopoljac et al., 2016),
within which firms pursuing value creation and competitive advantage have focused their
attention on developing their intangible and knowledge assets as critical factors to success
Journal of Intellectual Capital
Vol. 18 No. 4, 2017
pp. 710-732
© Emerald PublishingLimited
1469-1930
DOI 10.1108/JIC-08-2016-0083
The current issue and full text archive of this journal is available on Emerald Insight at:
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710
JIC
18,4
(Li et al., 2008; Sonnier et al., 2009; Yi and Davey, 2010). Intellectual capital (IC) is commonly
referred to as intangible assets (IA), and takes the form of knowledge, brands, patents and
trademarks, customer relationships, human capital, and research and development
(Lev et al., 2005; Sonnier et al., 2009; Dženopoljac et al., 2016). In this new economy, IC is
considered as the preeminent resource for generating economic wealth and growth
(Guthrie and Petty, 2000; Bontis, 2003; Siboni et al., 2013) as well as a strong driver of firm
performance and market value (Bozzolan et al., 2003; Sonnier et al., 2009). Moreover,
investment in IC is increasingly important to firms seeking to achieve productivity and
efficiency gains, and it thereby constitutes a crucial constituent of innovation in relation to
business processes and products (Bhasin, 2012). The recent literature explores various
definitions of IC and develops several frameworks and measurement instruments for IC
components, spurred on by a growing awareness of the benefits that IC reporting and
measurement may have for a company in terms of: support for the determination of
strategies; improvement in the evaluation of implemented strategies; support in the
assessment of mergers and acquisitions; and improvement in the communication with
external stakeholders (Bontis, 2003; Marr et al., 2003; Bhasin, 2012).
Stewart (1997) argues that IC gauges the intellectual resources, knowledge, experience,
information, competitiveness, and learning of organizations used for the purposes of wealth
production. The World Intellectual Capital/Assets Initiative (WICI) (2016, p. 12) considers IC
as “the internal (competencies, skills, leadership, procedures, know-how, etc.) and external
(image, brands, alliances, customer satisfaction, etc.) stock of dynamically interrelated
intangibles available to an organization, which allows the latter to transform a set of
tangible, financial and human resources into a system capable of pursuing sustainable value
creation”. The guidelines of the EU’s Meritum Project (2002) divide IC into three categories:
human capital, structural capital, and relational capital. Human capital is defined as the
knowledge and skills that employees bring with them when they leave the company.
Structural capital is seen as the knowledge which remains within the company when
employees leave, and includes organizational routines, procedures, cultures, databases, and
so on. Finally, relational capital comprises all external relationships such as formal business
collaborations and all other informal links to external entities such as customers, suppliers,
banks, and non-profit organizations (Leitner, 2004).
Despite a wealth of studies that highlight the importance of ICto firm value creation and
the need to develop appropriate measurement tools, traditional financial accounting still does
not take into accountthe full range of intangible resourcesthat drive a company’svalueand
its growth prospects (Edvinsson and Malone, 1997; Bontis, 2003; Oliveras et al., 2008;
Bhasin, 2012;Abhayawansa and Guthrie, 2016; WICI, 2016). From an accounting perspective,
most IA are not identifiable, excepting assets coveredby specific legal rights (e.g.patents and
trademarks) that may be recognized only when they are purchased (IAS 38). Moreover,
researchers do not yet have a universally accepted instrument to enable the measurement of
IC value (Goebel, 2 015; Dženopoljac et al., 2016).
According to the existing literature, IC may be considered as a significant “hidden value”
that is not captured in the financial statements, the value of which may be gauged in the
difference between firm market value and book value (Edvinsson and Malone, 1997;
Brennan, 2001; Ordóñez de Pablos, 2003; Oliveras et al.,2008;Ruta,2009).Thus,onesuitable
method for determining the value of the intellectual (intangible) assets of a company is to
compare its market to its book value by computing the market to book (MTB) ratio (Kok, 2007).
In recent years, several studies employ the market capitalization approach (MCA), based on the
MTB ratio, in order to estimate IC value (Brennan, 2001; Bramhandkar et al., 2007; Kok, 2007;
Whiting and Miller, 2008; Goebel, 2015; Tseng et al., 2015). This approach assumes that financial
markets do not gauge IC value by analyzing the statement of financial position and the income
statement (Sveiby, 1997a; Penman, 2009; Goebel, 2015). Instead, Bhasin (2012) argues that
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IC of
Italian listed
companies
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