This paper reviews the literature pertaining to the assessment of knowledge assets. Since knowledge assets are at the crux of sustainable competitive advantage, the burgeoning field of intellectual capital is an exciting area for both researchers and practitioners. Unfortunately, the measurement of such intangible assets is difficult. A variety of models have surfaced in an attempt to measure IC and this paper aims to highlight their strengths, weaknesses and operationalizations.

http://www.tarrani.net/kate/docs/AssessingKnowledgeAssets.pdf

Assessing knowledge assets: a review of the models used to measure intellectual capital

Purpose – The purpose of this article is to investigate empirically the relation between the value creation efficiency and firms’ market valuation and financial performance.Design/methodology/approach – Using data drawn from Taiwanese listed companies and Pulic's Value Added Intellectual Coefficient (VAIC™) as the efficiency measure of capital employed and intellectual capital, the authors construct regression models to examine the relationship between corporate value creation efficiency and firms’ market‐to‐book value ratios, and explore the relation between intellectual capital and firms’ current as well as future financial performance.Findings – The results support the hypothesis that firms’ intellectual capital has a positive impact on market value and financial performance, and may be an indicator for future financial performance. In addition, the authors found investors may place different value on the three components of value creation efficiency (physical capital, human capital, and structural cap...

An empirical investigation of the relationship between intellectual capital and firms’ market value and financial performance

Purpose – Intellectual capital (IC) shows a significant growing acceptance as a worthy topic of academic investigation and practical implication. The purpose of this study is to examine the impact of IC on firms' market value and financial performance.Design/methodology/approach – The empirical data were drawn from a panel consisting of 96 Greek companies listed in the Athens Stock Exchange (ASE), from four different economic sectors, observed over the three‐year period of 2006 to 2008. Various regression models were examined in order to test the hypotheses included in the proposed conceptual framework.Findings – Results failed to support most of the hypotheses; only concluding that there is a statistically significant relationship between human capital efficiency and financial performance. Despite the fact that IC is increasingly recognised as an important strategic asset for sustainable corporate competitive advantage, the results of the present study give rise to various arguments, criticism and furthe...

/pdf/the-impact-of-intellectual-capital-on-firms-market-value-and-4ixk374apg.pdf

The impact of intellectual capital on firms' market value and financial performance

Purpose – The purpose of this paper is to analyse the role of value added (VA) as an indicator of intellectual capital (IC), and its impact on the firm's economic, financial and stock market performance.Design/methodology/approach – The value added intellectual coefficient (VAIC™) method is used on 300 UK companies divided into three groups of industries: high‐tech, traditional and services. Data require to calculate VAIC™ method are obtained from the “Value Added Scoreboard” provided by the UK Department of Trade and Industry (DTI). Empirical analysis is conducted using correlation and linear multiple regression analysis.Findings – The results show that companies' IC has a positive impact on economic and financial performance. However, the association between IC and stock market performance is only significant for high‐tech industries. The results also indicate that capital employed remains a major determinant of financial and stock market performance although it has a negative impact on economic perform...

Analysing value added as an indicator of intellectual capital and its consequences on company performance

Breaks with the prior literature on intellectual capital disclosure practices in two major ways. First, provides a longitudinal examination of intellectual capital disclosure practices in the annual reports of 31 FTSE 100 listed companies from 1996‐2000. Second, investigates the relationship between intellectual capital performance and the extent of intellectual capital disclosure. Between 1996 and 2000 the quantity of intellectual capital disclosure increased. Empirical findings did not indicate a systematic relationship between intellectual capital performance and the quantity of disclosure during the survey period. Results, however, suggest that if intellectual capital performance is too high the amount of disclosure is reduced. This negative association may support the suggestion that firms reduce intellectual capital disclosures when performance reaches a threshold level for fear of competitive advantage being lost. Leverage, industry exposure and listing status was also found to have an influence on the quantity of disclosure.

Is intellectual capital performance and disclosure practices related

More and more companies are sensing a gap between the modern approach of value creation and the old way of monitoring operations. This discrepancy is typical of the situation companies face today: on the one hand there is modern business reality and on the other inappropriate traditional evaluating methods. 

What could be the cause for such situation? Many analysts consider that new business criteria require new indicators for accurate business decisions.(1) In my opinion, there are three essential elements, which form the difference in business activity:

First, the principal characteristic of the alteration is the introduction of knowledge into products and services. After periods dominated by quantity, quality has become increasingly important. We can therefore define a new regularity in the activities of modern companies: In the same way the price fell with increased quantities of the product on the market in classical industrial conditions, now it falls with increased information content.
Due to the first change labor has got an entirely different position. In contrast to the majority of labor before, which was simple and routine, now the majority of labor is tied to knowledge and the ability of the employees to transform it into profitable action. Depending on the capabilities of the employed, the same quantity of labor may now achieve completely different business results in contrast to prior times when a given amount of routine work produced more or less the same product quantity.

Third, we have a totally altered structure of expenditures. In a traditional company the ratio between production and all other costs was 80:20 on the average. Today this ratio is almost vice versa. Production costs, which created the principal part of industrial economy, are almost insignificant for contemporary business, as is production itself in the total activity of a company.

In conditions of scarcity, companies were primarily orientated towards the increase of quantity and according to this the entire system of measuring business performance was based on this. The best example is revenue, which is still considered to be an adequate criterion for companys size. In the traditional company monitoring labor force and material costs was developed almost to perfection. Contrary to that, todays significance of these costs is marginal.

Considering these differences it is obvious that the accounting system analyzing the business activities in a company has to be changed and adapted. The once significant resources are becoming less important from the standpoint of modern business since knowledge has become the basic resource. However, there are still no appropriate information models providing necessary information on IC business activities, which is exactly the Achilles' heel of modern companies. Since the above mentioned course of information is hardly even monitored I would like to focus on that in my paper and share with you the efforts of my team to provide a theoretical and practical solution.

VAIC-An Accounting Tool for IC Management

The existing accounting system cannot meet the requirements of modern companies any more because not costs but value creation is the core of modern business. If a company aims to achieve a maximum result with its given resources management must know how successfully they create value in the company. Information provided by a basic economic function - measuring the efficiency of value creation - is therefore decisive for successful management of intellectual assets. The VAIC™ method measures and monitors the value creation efficiency in the company using accounting based figures. The better a company's resources (capital employed and intellectual capital) have been utilised, the higher the company's value creation efficiency will be (whereby human capital, as the decisive value creation factor of modern business). This results in an increase of value added on the one hand and determines the market value on the other hand, as our research has shown.

VAIC™ – an accounting tool for IC management

Taking into account the transformation in economic reality towards a knowledge economy it seems logical that we treat IC as a resource, equal to that land, physical assets, and financial capital. This means that it is not anymore treated as a cost but as an investment. In order for the new system to be consistent we have to define a new index, namely the value creation efficiency of intellectual capital. Its empirical applications shows that while revenue, profit and GDP may indicate successful performance, IC efficiency may indicate the opposite, that value is being destroyed and not created.

Intellectual capital – does it create or destroy value?

The Principles of Intellectual Capital Efficiency - A Brief Description

The existing accounting systems cannot meet the requirements of modern companies any more. Not costs but value creation is the core of modern business and intellectual capital has become the decisive value creation factor of modern business. If a company aims to achieve a maximum result with the existing resources its management must know how successfully value added is created, how efficiently this is done, and what is the contribution of intellectual capital. The VAIC analysis is a measuring tool providing information these matters.

Ante Pulic

Papers

VAIC-An Accounting Tool for IC Management

VAIC™ – an accounting tool for IC management

Intellectual capital – does it create or destroy value?

The Principles of Intellectual Capital Efficiency - A Brief Description

Do we know if we create or destroy value