The relationship between intellectual capital, firms’ market value and financial performance. Empirical evidence from the ASEAN
| Pages | 587-618 |
| Date | 13 July 2015 |
| DOI | https://doi.org/10.1108/JIC-09-2014-0104 |
| Published date | 13 July 2015 |
| Author | Sirinuch Nimtrakoon |
| Subject Matter | Information & knowledge management,Knowledge management |
The relationship between
intellectual capital, firms’market
value and financial performance
Empirical evidence from the ASEAN
Sirinuch Nimtrakoon
School of Accountancy, University of the Thai Chamber of Commerce,
Bangkok, Thailand
Abstract
Purpose –The purpose of this paper is to explore and compare the extent of intellectual capital (IC)
and its four components among ASEAN countries, and examine the relationship between firms’IC,
market value, and financial performance.
Design/methodology/approach –The study uses the data of 213 technology firms listed on
five ASEAN stock exchanges. Pulic’s Value Added Intellectual Coefficient model is modified by adding
an extra component, namely, relational capital efficiency (RCE). The Kruskal-Wallis one-way ANOVA
and multiple regression analysis have been utilized to test the hypotheses.
Findings –The results reveal that there is no significant difference in Modified Value Added
Intellectual Coefficient (MVAIC) across five ASEAN countries; however, firms in each country tend to
place a different degree of emphasis on components of MVAIC to generate corporate value. The results
further indicate a positive relationship between IC and market value, confirming that firms with
greater IC tend to have greater market value. Likewise, a positive relationship between IC and financial
performance measures is confirmed. Specifically, IC is found to be positively associated with margin
ratio and return on assets. Capital employed efficiency and human capital efficiency are found to be the
most influential value drivers for both market value and financial performance while structural capital
efficiency and relational capital efficiency possess less importance.
Originality/value –This study contributes to the IC literature by expanding our knowledge of
IC in the emerging economies, and providing a national comparative IC research when such research
is limited.
Keywords Financial performance, Intellectual capital, Market value
Paper type Research paper
Introduction
Intellectual capital (IC) literature has revealed the significance of IC to companies’
financial and market performance and it has been shown increasing attention from
both academics and practitioners over the last two decades. The world-wide
recognition of IC and its popularity has confirmed it as an academic discipline (Serenko
and Bontis, 2013). IC has been discerned as a key value driver of firms operating in the
new economy and has become a most powerful factor for those companies in enhancing
their competitive competence and achieving corporate success (Wang, 2008). The need
for and benefit from IC for companies in knowledge intensive sectors, including
high-technology and service industries is considerable; hence, they tend to invest
substantially in IC. This fact makes high-technology and service sectors appropriate
and attractive industries for IC research (Bontis, 2001; Hermans and Kauranen, 2005). Journal of Intellectual Capital
Vol. 16 No. 3, 2015
pp. 587-618
©Emerald Group Publis hing Limited
1469-1930
DOI 10.1108/JIC-09-2014-0104
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1469-1930.htm
The research was financially supported by University of the Thai Chamber of Commerce.
587
Empirical
evidence from
the ASEAN
In spite of its importance, IC is not easily identified, captured, and reported in
financial statements. This may be partly because of the influence from accounting
standards. Based on International Accounting Standard IAS 38, intangible assets, the
recognition of internally generated brands, mastheads, publishing titles, and customer
lists in financial statements is prohibited (IASB, 2004). It implies that the identification
and measurement of these IC items in organizations is not easily accommodated by
traditional accounting practice. This results in an increasing gap between firms’
financial value as shown in corporate reports and stock market value (Rahman, 2012).
In response to the need for IC valuation, several methods to measure IC and its
performance have been developed by various researchers, for example, Skandia IC
Report Method (Edvinsson and Malone, 1997), Value Added Intellectual Coefficient
(VAIC
TM
) Model (Pulic, 1998, 2000), and Intangible Asset Monitor Approach (Sveiby,
1997). Among these methods, Pulic’s VAIC
TM
is widely adopted by academics and
practitioners as a method to measure IC and reflect the market value of corporations.
There has been some criticism of VAIC
TM
and this will be enumerated below, however,
irrespective of the critique, it provides a standardized and integrated measure, which
allows cross-organizational or cross-national comparison and analysis (Chen et al. ,
2014; Phusavat et al., 2011; Young et al., 2009; Zeghal and Maaloul, 2010). In the light of
this criticism the research has modified Pulic’s original VAIC
TM
model and this will be
discussed further in the literature review.
The attempt to measure the impact of IC on value creation as well as the attempt
to capture relationships between IC and firms’value and performance, especially in
developing countries, has been scarce (Guthrie et al., 2012; Hermans and Kauranen,
2005). Within SouthEast Asia this has particular importance given the establishment of
the ASEAN economic community (AEC) and regional economic integration, by 2015.
AEC aims to establish a single market and production base; a highly competitive
economic region; a region of equitable economic development; fully integrated into the
global economy. The AEC promotes free movement of goods, services, investm ent,
skilled labor, and free flow of capital (ASEAN, 2014b). There is evidence that natural-
resource-intensive products were the main exports and imports of ASEAN countries
over the past two decades; however, the focus has now changed to electronics and other
relatively sophisticated manufactures (UNCTAD, 2013). This fact has emphasized the
importance of IC in the ASEAN region. To achieve the expectations of those in the
region, all countries in ASEAN should therefore collaborate more effectively and
generate a higher competitive advantage, especially through the management of IC.
However, IC performance of corporations in the ASEAN is in question, and little
research has been documented (Phusavat et al., 2012).
To fill this researchgap, the current research wascarried out in the context of selected
ASEAN countries.The five largest emerging economies in ASEAN and alsothe founders
of ASEAN, Indonesia, Malaysia, Philippines, Singapore, and Thailand, have been
selected for the study due to the availability of data in the English language and the
comparability of the financial structure. In response to industry appropriateness,
it focusses on the high-technology sectors of these five ASEAN countries. In sum, the
study aimed to exploreand compare IC performance of listedcompanies operating in the
high-technology sector across five countries in ASEAN as well as examine empirically
the relationship between firms’IC, market value, and financial performance. The data
were drawn from financial statements and annual reports of these firms.
Particularly, this research sets out to evaluate and compare IC efficiency –the
Modified Value Added Intellectual Coefficient (MVAIC) adapted from Pulic (1998) –of
588
JIC
16,3
listed firms in technology industries among different ASEAN countries. Its aim is
also to empirically investigate the relationship between the value creation efficiency
(MVAIC) and market-to-book (MB) ratio as a proxy of firms’market value as well as
firms’financial performance, particularly margin ratio, and return on assets (ROA).
This study contributes to the body of knowledge on IC in many ways. First, the
research will shed light on the limited prior comparative IC research across the nations
by assessing and comparing IC efficiency in the high-technology sector in selected
ASEAN economies. This gives an overview of IC performance of technology firms in
developing countries. Second, it will provide empirical evidence on the relationship
between IC and firms’market value as well as financial performance by using data
from listed companies in these countries. Thus, the findings from this study are
expected to expand our understanding of IC and its impact on firms’value and
performance in emerging economies. Third, the current paper has modified the Pulic
VAIC
TM
model by incorporating an additional component, namely, relational capital
(RC), resulting in a more comprehensive measure of firm’s IC efficiency.
Fourth, although Pulic proposed the use of his VAIC
TM
as an aggregate measure
of corporate intellectual performance, this study will employ the MVAIC model
as a comprehensive measure and the four individual coefficients; namely, physical
capital, human capital, structural capital, and RC. This adds greater insight into the
explanatory power of these components on firms’market value. Fifth, previous studies
rarely control for other influences that might affect firms’market value and financial
performance. The current research inserts a number of control variables into the
analysis aiming at an improved investigation of the relationship. Finally, this study is
anticipated to be of interest to several stakeholders such as shareholders, institutional
investors, academics, government agencies, and managers. For example, the results
may assist managers in better managing and harnessing IC while investors may use IC
efficiency as a means to assess firms’ability to create value through IC.
Following this introduction the remainder of the research paper is organized as
follows. A literature review on IC research, Pulic’s VAIC
TM
, including critique and
modification, are mentioned in the next section. Research methodology, which includes
research setting, sample selection, hypotheses development, research method, and
variable measurement, is then presented. Data analysis, including descriptive analysis,
correlation analysis, and hypotheses testing, is explained in the following section.
The conclusion and implications of the research as well as limitations and potential for
future research are then discussed.
Literature review
Previous research applying Pulic’s VAIC
TM
model
Among various measurement models of IC, Pulic’s VAIC
TM
model has attracted much
attention over the past two decades. Various researchers and practitioners have
adopted Pulic’s VAIC
TM
model as a measure of IC. Much of the IC research has been
performed in developed countries, while latterly IC research in developing countries
has received increasing interest. The research, its results and implications are
elaborated below.
Regarding the study of IC and its relationship with market value and firm’s
performance in developed economies, generally consistent empirical findings tend
to be revealed. Research by Bassi and van Buren (1999) was one of the early works
investigating the relationship between IC investment and financial performance. They
identified a positive relationship between IC investment and financial performance
589
Empirical
evidence from
the ASEAN
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