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A critical validation of the value added intellectual coefficient: use in empirical research and comparison with alternative measures of intellectual capital

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Abstract

The measurement of intellectual capital (IC) constitutes a major challenge in managing intangible resources. Among the various models proposed in prior literature, the value added intellectual coefficient (VAIC) is used by many studies to measure IC. Assuming a perfectly competitive market, this study decomposes the VAIC and demonstrates that it is not directly related to IC. Conversely, the main components of VAIC are the labor share, physical capital share, and interest rate. These results are extended to a non-perfectly competitive setting through a multivariate analysis of a cross-country panel of 50,310 firm-year observations for 2000–2017. The results show that the VAIC still largely depends on exogenous factors being negatively (positively) associated with the labor (physical capital) share. Nevertheless, in this non-perfectly competitive setting, the VAIC also captures a firm’s ability to generate profits, which may be attributable to multiple factors, including IC. To reduce potential measurement biases in empirical research using the VAIC, this study suggests controlling for a firm’s interest rate, labor and capital shares. Adopting this suggestion, this study investigates the association between VAIC and firm performance. The results show that this association is significantly weaker when including the interest rate, labor and capital shares. The theoretical and empirical results suggest future researchers to select the VAIC to measure IC after having conscientiously examined the alternative models proposed in recent literature.

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Notes

  1. More details on the VAIC method and prior empirical literature employing VAIC can be found in Pulic (2000, 2008), Ståhle et al. (2011), Iazzolino and Laise (2013), Dumay (2014) and Pedro et al. (2018).

  2. For clarity in designing the model, we replace the notations α, β, and r in Eq. (13) with LABOR, CAPITAL, and R, respectively.

  3. We recall from Sect. 3 that α is the elasticity coefficient of human capital from Eq. (7) and is equal to the labor share (wH/pY). Similarly, β is the elasticity coefficient of the physical capital from Eq. (7) and is equal to the capital share (pY/rK). Thus, from now on, we use the terms “labor share” and “capital share” to refer to the elasticity coefficients of intellectual and physical capital.

  4. Accessed via WRDS on September 16, 2018.

  5. A Wald test shows that the difference between the estimated coefficients of the VAIC in Column (1) and Column (3) is statistically significant at p < 0.01, that between those in Column (4) and Column (6) is statistically significant at p < 0.10, and that between those in Column (7) and Column (9) is statistically significant at p < 0.01.

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Authors and Affiliations

  1. Department of Economics and Management “Marco Fanno”, University of Padua, Via del Santo 33, 35123, Padua, Italy

    Thomas Bassetti

  2. Department of Accounting and Management Control, ESSEC Business School, 3 Av. Bernard Hirsch, 95021, Cergy-Pontoise, France

    Lorenzo Dal Maso

  3. Accounting and Finance Division, Economics and Management School, University of Florence, Via delle Pandette 9, Building D6, 50127, Florence, Italy

    Giovanni Liberatore & Francesco Mazzi

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Appendix

Appendix

Variables

Description (Compustat Global code)

VAICw

Sum of HCE, SCE, and CEE

HCEw

Human Capital Efficiency: VA divided by total staff expenses (XLR)

SCEw

Structural Capital Efficiency: VA minus staff expenses divided by VA (XLR)

CEEw

Capital Employed Efficiency: VA divided by the difference between total assets and the value of intangibles (AT, INTAN)

LABOR w

Labor share: Total staff expenses divided by total sales (XLR, SALE).

CAPITAL w

Capital share: Total capital expenditures divided by total sales (CAPX, SALE)

Rw

Interest and related expenses divided by the sum of long-term debt and debt in current liabilities (XINT, DLTT, DLC)

INTANGIBLESw

Total intangibles divided by total assets (INTAN, AT)

R&Dw

Research and development expenses divided by total assets (XRD, AT)

LEVw

Total liabilities divided by total common shareholder equity (LT, CEQ)

PAYMENT

Dummy variable that takes the value of 1 if the staff expenses are above the mean value by sector year, 0 otherwise (XLR)

SIZEL

Natural logarithm of total assets (AT)

ROAw

Income before extraordinary items divided by total assets (IB, AT)

ROEw

Income before extraordinary items divided by common shareholder equity (IB, CEQ)

ROIw

Earnings before interest and taxes divided by the difference between total assets and current assets (EBIT, AT, ACT)

  1. wWinsorized the 1% and 99% levels, while L is the natural logarithm

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Bassetti, T., Dal Maso, L., Liberatore, G. et al. A critical validation of the value added intellectual coefficient: use in empirical research and comparison with alternative measures of intellectual capital. J Manag Gov 24, 1115–1145 (2020). https://doi.org/10.1007/s10997-019-09494-w

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