The Effect of Intellectual Capital on Firms’ Valuation: An Empirical Investigation with Reference to India

Trilochan Tripathy (), Ashok Kumar Sar and Debadatta Sahoo

The IUP Journal of Applied Economics, 2014, vol. XIII, issue 3, 45-68

Abstract: The paper examines empirically the relation between intellectual capital efficiency and firms’ market valuation in India. Using data from Indian listed companies and Pulic’s Value Added Intellectual Coefficient (VAIC) measure, the paper constructs panel regression models for 10 years across seven industrial categories to examine the relationship between the intellectual capital efficiency and firms’ Market-to-Book Value (MTBV). The results suggest that the explanatory power of the individual components of intellectual capital efficiency (physical capital efficiency, human capital efficiency and structural capital efficiency) is observed to be better than the aggregate composite measure (VAIC). The results also affirm that expenditure on innovative capital and relational capital captures additional information on structural capital and has a positive effect on firms’ value contemporaneously. Further, in the presence of all the intellectual capital components, firms with greater innovative capital and relational capital in the ensuing year tends to have higher MTBV in the following year. The study does not support the idea that after controlling for structural capital efficiency, the firms with greater innovative capital tend to have higher MTBV during pre- and post-2008 financial crisis in general and across the Indian industries. The results extend the understanding of the role of intellectual capital in creating firms’ MTBV for companies in Indian economy.

Date: 2014
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