MtB versus VAIC in measuring intellectual capital: Empirical evidence from Italian listed companies

Forte, William; Matonti, Gaetano; Nicolo, Giuseppe; Tucker, Jon

Abstract

The purpose of this paper is to compare two of the most commonly employed methods employed to measure the Intellectual Capital (IC) value: Market to Book (MtB) ratio and the VAIC, in order to determine the most suitable in the context of Italian listed firms and their respective relationships with some key IC determinants. The study is conducted for a sample of Italian listed firms over the period 2009-2014. Different tests are employed to compare VAIC and MtB, while, two linear panel regression models with fixed effects models are performed in order to test the relationship between IC value and selected determinants. Results suggest that the MtB ratio is a better estimator of IC value than VAIC. For MtB, IA and profitability-are significant positive drivers, while leverage and size are significant negative drivers. For VAIC, only profitability and leverage are significant determinants, both having a positive effect. Recognised limitations in measuring IC value through MtB are partially mitigated because the sample is composed of listed companies preparing financial statements according to IFRS since 2005. Managers should try to avoid rigidity in their organisational structure and to focus on an IC investment strategy. Results could be beneficial for financial analysts and investors in selecting the best method for IC measurement. The paper makes an innovative comparison between two alternative IC metrics, to determine which is the more effective in capturing IC value in an Italian listed firms' context. Further, it identifies some key determinants of IC value.

• Journal Article Type: Article
• Acceptance Date: Aug 19, 2019
• Publication Date: Nov 1, 2019
• Deposit Date: Jan 28, 2021
• Publicly Available Date: Feb 3, 2021
• Journal: African Journal of Business Management
• Print ISSN: 1990-3839
• Publisher: Academic Journals
• Peer Reviewed: Peer Reviewed
• Volume: 13
• Issue: 17
• Article Number: A91B13362271
• Pages: 588-601
• DOI: https://doi.org/10.5897/AJBM2019.8840
• Keywords: Intellectual capital; Intangible assets; Market-to-book ratio; VAIC; Italian listed firms
• Public URL: https://uwe-repository.worktribe.com/output/5258716
• Publisher URL: https://academicjournals.org/journal/AJBM