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Procedia - Social and Behavioral Sciences 110 (2014) 887 – 896

Contemporary Issues in Business, Management and Education 2013

Intellectual capital and company value

Irina Berzkalnea*, Elvira Zelgalvea
a
University of Latvia, Aspazijas boulevard 5, LV-1050, Riga, Latvia

Abstract

The bulk of traditional corporate valuation methods reflect historical performance, while it is necessary to also take into
consideration the value which is off-balance-sheet and possible growth. Large differences exist between company market and
book value, and a part of this can be explained by intellectual capital. The aim of the study is to make an empirical investigation
of the impact of intellectual capital on company value. Empirical results show that one can find mixed results regarding
relationship between value added intellectual coefficient VAICTM and company value.

©
© 2014
2014 The
The Authors.
Authors. Published
Published by
by Elsevier
Elsevier Ltd.
Ltd.
Selection
Selection and
and peer-review
peer-review under
under responsibility of the
responsibility of the Contemporary
Contemporary Issues
Issues in
in Business,
Business, Management
Management and
and Education
Education conference.
conference.

Keywords: company value; intellectual capital; human capital; Tobin’s Q; value added intellectual coefficient (VAICTM).

1. Introduction

One of the main objectives of a company manager is to maximize company value. Company value is at the
center of corporate finance, however, calculating a value for a company is not easy. First, different companies
should be valued differently (for example, public company vs. private company). Second, company value depends
on the aim of the valuation as well (one company can have several values, depending on the method). The last two
decades have seen a stream of innovation in financial markets, yet corporate valuation methods have not changed
significantly. Traditional corporate valuation methods include discounted cash flow valuation, liquidation and
accounting valuation, relative valuation and contingent claim valuation (different authors propose various groupings

* Corresponding author. Tel.: +0-371-2999-2532.

E-mail address: [email protected]

1877-0428 © 2014 The Authors. Published by Elsevier Ltd.

Selection and peer-review under responsibility of the Contemporary Issues in Business, Management and Education conference.
doi:10.1016/j.sbspro.2013.12.934
888 Irina Berzkalne and Elvira Zelgalve / Procedia - Social and Behavioral Sciences 110 (2014) 887 – 896

of valuation methods). The bulk of these methods reflect historical performance, while it is necessary to also take
into consideration the value which is off-balance-sheet and possible growth.
Traditional corporate valuation methods are based on balance sheet, income statement or cash flow statement;
however, intellectual capital is an asset as well. Yet it is valued at zero on the balance sheet. Large differences exist
between company market and book value, and a part of this can be explained by intellectual capital. Even though
there is no universal definition of intellectual capital, its information provides an indication about the future
potential of a company.
The aim of the study is to make an empirical investigation of the impact of intellectual capital on company value.
The tasks of the research are as follows: to analyze the significance of intellectual capital and review the results of
previous research on VAICTM; to evaluate the relationship between VAICTM, its components and company value; to
make conclusions and work out recommendations for improvement of traditional corporate valuation methods.
The analysis is conducted on a sample of 64 Baltic listed companies (Baltic Stock Exchange) over the period
from 2005 to 2011. In the research paper, the following qualitative and quantitative methods of research are applied:
the monographic method, descriptive statistics and correlation analysis. The research is based on published papers
on intellectual capital and VAICTM, as well as the information provided by the Baltic Stock Exchange.
The remainder of the paper is organized as follows. Section 2 describes the intellectual capital and recent
empirical findings on this subject; Section 3 illustrates the sample and methodology of research; Section 4 contains
the analysis carried out and the discussion. The final section concludes the paper.

2. Intellectual capital

There are many corporate valuation methods. Nevertheless, studies find contradictory results, and the corporate
finance community is not even close to a universal methodology of company valuation. Different methods have
different advantages in different situations, and some capture important aspects of valuing a business, which are not
recognized by others. Traditional company valuation methods pay more attention to either historical figures (based
on the balance sheet, income or cash flow statement) or inexact forecasting [for example, free cash flow and
weighted average cost of capital (WACC) for subsequent periods]. These methods are mostly taking into
consideration the physical assets of the company, while in the knowledge-based economy more emphasis is put on
employees and intellectual capital. Therefore, afore mentioned corporate valuation methods are not suitable in
today’s world.
In a knowledge-based economy, one must take into consideration not only the traditional ways to measure the
company value, but it is necessary to recognize intellectual capital as well. Traditional measures of a company’s
performance, which are based on conventional accounting principles, may be unsuitable in the knowledge–based
economy which is driven by intellectual capital (Gan & Saleh, 2008). Although intellectual capital and knowledge
assets are difficult to discern and quantify, their results will nonetheless be reflected in the company’s greater
productivity, efficiency, and overall profitability. The limitations of financial statements in explaining company
value underline the fact that the source of economic value is no longer the production of material goods, but the
creation of intellectual capital (Chen, Cheng & Yuchang, 2005).
Intellectual capital is intangible and cannot be accurately measured. For example, Frykman & Tolleryd (2010)
define intellectual capital as all non-financial assets of a company that are not reflected in the balance sheet. Yet
Tawy & Tollington (2012) have observed that there is no universal definition for intellectual capital and the cause
and effect relationship between intellectual capital and value creation is, at best, indirect.
Bayburina & Golovko (2009) emphasized that intellectual capital is the “intangible safety - cushion”, which can
be used only by companies who have created it years before. Therefore it is necessary to focus on sustainable
development. The panel data analysis of before mentioned study revealed that the human capital can be considered
the key factor of the long-term growth of BRIC companies. Brown et al. (2005) emphasize that intellectual capital
has ascertainable monetary value, provides a company with a competitive edge, and enables it to differentiate itself
from tis competitors.
Value Added Intellectual Coefficient (VAICTM) is a method developed by Pulic (2000), which monitors and
measures the value creation efficiency in the company according to accounting based figures. The VAICTM model is
intended to measure the extent to which a company produces added value based on intellectual (capital) efficiency
or intellectual resources (Stahle, Stahle & Aho, 2011):
 Irina Berzkalne and Elvira Zelgalve / Procedia - Social and Behavioral Sciences 110 (2014) 887 – 896 889

• Human capital (HC) is interpreted as employee expenses and human capital efficiency (HCE) is calculated by
dividing VA (added value) with HC (human capital);
• Structural capital (SC) is difference between produced added value (VA) and human capital (HC). Structural
capital efficiency (SCE) is calculated by dividing SC (structural capital) with VA (value added);
• Capital employed (CE) is interpreted as financial capital and capital employed efficiency (CEE) is calculated by
dividing VA (value added) with CE (capital employed).
• Value added intellectual coefficient VAICTM is a sum of HCE, SCE and CEE.

As summarized by Boujelbene & Affes (2013), human capital captures the knowledge, professional skills,
experience and innovativeness of employees within an organization, whereas structural capital consists of the
structures and processes employees develop and deploy in order to be productive, effective and innovative.
VAICTM measures how much new value has been created per invested monetary unit of resources. A high
coefficient indicates a higher value creation using company resources. Capital employed efficiency (CEE) shows
how much new value has been created by one unit of investment in the capital employed. Human capital efficiency
(HCE) indicates how much value added has been created by one financial unit invested in the employees. Structural
capital efficiency (SCE) is the indicator of the value added efficiency of structural capital (Gan & Saleh, 2008).
VAICTM is an easy-to-calculate, standardized, and consistent basis of measure, enabling effective comparative
analyses across companies and countries (Firer & Williams, 2003). On the other hand, the analysis by Stahle, Stahle,
& Aho (2011) shows that VAICTM parameters have nothing to do with intellectual capital; they merely indicate the
efficiency of the company’s labor and capital investments.
Many papers are published on intellectual capital or VAICTM and company performance. The results by Chen,
Cheng, & Yuchang (2005) provide empirical evidence that investors place higher value on companies with better
intellectual capital efficiency, and that company with better intellectual efficiency gains greater profitability and
revenue growth in both the current and the following years. Shiu (2006) found that VAICTM has a positive
correlation with profitability (return on assets) and market valuation (market-to-book ratio), while a negative
correlation with productivity was found. The study by Wang (2008) found that Tobin’s Q, KCE (Knowledge Capital
Earnings), and VAICTM have a positive relationship with company value. Maditinos (2011) found a significant
relationship between human capital efficiency and the return on equity. Rahman (2012) used a sample of 100 UK
firms listed on the London Stock Exchange and confirmed that greater intellectual capital efficiency leads to a better
financial performance. The empirical analysis by Pucci, Simoni, & Zanni (2013) shows that there is a positive direct
relationship between company’s intellectual capital value and performance. Chang (2013) found that intellectual
capital components generally have a positive direct/indirect effects on financial performance. Findings by Lu, Wang
& Kweh (2014) reveal that intellectual capital is significantly and positively associated with company’s operating
efficiency. The results obtained by Wang (2013) show a positive relationship between Tobin’s Q and VAICTM.
The findings by Sumedrea (2013) show that in crisis the development of companies is influenced by the human
and the structural capital. Several papers focus on intellectual capital and profitability. Study by Sydler, Haefliger &
Pruksa (2013) concluded that an increase in intellectual capital is associated with a higher return on assets over time.
Daryaee et al. (2011) stated that corporate value (in this case used Tobin’s Q) is positively correlated with
intellectual capital, however not found any relation between return on assets and intellectual capital.
Yet other studies did not find any significant relationships. For example, Ferraro & Veltri (2011) concluded that
the intellectual capital variables do not have a meaningful relation with the market value. Analysis by Mehralian,
Rasekh, Akhavan & Sadeh (2012) also failed to support the impact of intellectual capital on market value. Results
by Tanideh (2013) indicate that there is no significant relationship between intellectual capital and corporate value.
Some studies found no relationship between intellectual capital, VAICTM and company performance, yet
components of VAICTM show different results (Chu, Chan, Yu, Ng & Wong, 2010; Gan & Saleh, 2008; Clarke,
Seng, & Whiting, 2011). For example, Huang & Hsueh (2007) concluded that structural capital and relational capital
have better performance, whereas human capital presents the poorest performance.
Research has been done in the Baltic countries as well. For example, Stankeviciene & Liucvaitiene (2012) stated
that the result of intellectual capital evaluation is conditioned by the size of the company, its activity, and view of
the managers themselves on the demand for measuring the intellectual capital.
As pointed out by Iazzolino & Laise (2012), the performance measure proposed by Pulic (VAICTM) is not a
genuine rival of traditional methodologies. In addition, VAIC and EVA measure different aspects of the
890 Irina Berzkalne and Elvira Zelgalve / Procedia - Social and Behavioral Sciences 110 (2014) 887 – 896

performance and, therefore, may usefully live together in a context in which the performance is measured through
multicriteria methodologies.
Alcaniz, Gomez-Bezares, & Roslender (2011) state that it is unlikely that accounting, as it has traditionally been
understood, is capable of meeting new challenges of intellectual capital. At the very least, it seems desirable to
continue to promote combinations of numbers in order to take into account the intellectual capital. Similar
conclusions are made by Gowthorpe (2009) – intellectual capital accounting does not fit successfully into the
traditional model of financial accounting and reporting. The results of study by Cronje & Moolman (2013) also
indicate that accounting should be modified to ensure a standardized and comparable approach on intellectual
capital.
Undeniable is the fact that intellectual capital is an asset of the company and an increase in intellectual capital
should increase the value of the company as well. Yet empirical results of intellectual capital and VAICTM are
inconsistent. Some studies find positive correlation between intellectual capital and company value, while others do
not find any relationship. In addition, there is a bulk of studies, which find a connection between VAICTM
components and market value. Certainly, the subject of intellectual capital and its impact on value is topical and
more research is necessary.

3. Sample and research methodology

The study is based on financial data collected from the financial statements of 64 Baltic listed companies
(Table 1). The financial and real estate companies are excluded from the study due to their distinct balance sheet
structure. The analysis is based on seven years of data (2005–2011) for Estonia, Latvia and Lithuania. The selection
criteria required all companies to have all variables available for all seven years analyzed. Companies that failed to
meet this requirement were excluded from the sample.

Table 1. Number of Baltic listed companies used in the study, 2005–2011

Latvia Estonia Lithuania

Main list 5 11 12
Secondary list 24 0 12

This study uses a sample which consists of several sectors of industry. The highest number of companies in
one sector can be found for consumer goods (24), whereas other industries are utilities, telecommunication,
technology, industrials, health care, consumer service and basic materials companies (Table 2).

Table 2. Number of Baltic listed companies used in the study by industries, 2005–2011

Industry Number of companies

Basic materials 5
Consumer goods 24
Consumer services 7
Health care 5
Industrials 17
Technology 1
Telecommunications 1
Utilities 4

The analysis is conducted using the correlation method. The Pearson correlation ratio measures the degree and
the direction of linear relationship between two variables. Correlation coefficient of +1 corresponds to a perfect
positive linear relationship, coefficient of –1 corresponds to a perfect negative linear relationship, and 0 indicates no
linear relationship between variables.
As a proxy for company value, the Tobin’s Q was used, which was introduced by James Tobin (1969). There are
several methodologies and formulas used in the calculation of Tobin’s Q (for example, see Wernerfelt &
 Irina Berzkalne and Elvira Zelgalve / Procedia - Social and Behavioral Sciences 110 (2014) 887 – 896 891

Montgomery, 1998; Linderberg & Ross, 1981; Chung & Pruitt, 1994). This study used the methodology by Jin &
Jorion (2006). This methodology was used, for example, by Gomez-Gonzales, Rincon, & Rodriguez (2012).

BV total assets − BV common equity + MV common equity

Tobin ' s q = (1)
BV total assets

where BV is book value and MV is market value.

If Tobin’s Q is greater than 1, then the market value is greater than the book value of company assets; the market
may be overvaluing the company. On the other hand, if Tobin’s Q less than 1, then the market value is less than the
book value of the assets; the market may be undervaluing the company. Tobin’s Q is used by Coad & Rao (2006);
Sorescu (2008); Dotzel, Shankar, & Berry (2013); Wang (2013), Kweh, Chan, & Ting (2013).
Value Added Intellectual Coefficient (VAICTM) consists of a sum of human capital efficiency (HCE), structural
capital efficiency (SCE) and capital employed efficiency (CEE):
Human capital efficiency (HCE) = value added (VA) / human capital (HC) (2)
Structural capital efficiency (SCE) = structural capital (SC) / value added (VA) (3)
Capital employed efficiency (CEE) = value added (VA) / capital employed (CE) (4)
Value added intellectual coefficient (VAICTM) = HCE + SCE + CEE (5)
This study uses the approach by A.Riahi-Belkaoui (2003), when value added (VA) is calculated:
VA = W + I + DD + T + R, (6)
where W is wages, I – interest, DD – dividends, T – taxes and R – net income.
VAICTM is widely used in analysis of intellectual capital, see for example, Pastuszak, Chuacharoen, Tong-In,
Anussornnitisarn, Meeanpol, & Shuy (2013); Fourati & Affes (2013); Joshi, Cahill, Sidhu, & Kansal (2013); Kweh,
Chan, & Ting (2013); Darabi, Kamran, & Ghadiri (2012); Venugopal & Subha (2012); Pucar (2012); Rahman
(2012); Komnenic & Pokrajcic (2012).

4. Empirical analysis and discussion of results

Table 3 represents the average Tobin’s Q, CEE, HCE, SCE and VAIC for each year of the research in Latvian,
Lithuanian and Estonian companies. As shown in the table, Tobin’s Q of Estonian companies exceeded 1 in all years
[the highest value was achieved in 2007 (2.26)]. A different situation can be found for Latvian companies. The
Tobin’s Q has only once exceeded 1 (in 2007). Overall, these results indicate that the market might be overvaluing
the companies in Estonia, while undervaluing the companies in Latvia, whereas Tobin’s Q in Lithuania was
around 1.
A VAICTM of 2.58 was obtained in the case of Latvia for the year 2011. This indicates that the company created
2.58 LVL out of one LVL invested in the company. If the components are examined individually, then one can
conclude that human capital is more efficient in creating value for the company in comparison to capital.
All value added intellectual coefficients exceed 1 and it means that an average company has created more than 1
monetary unit out of every monetary unit invested in the company. The highest return was achieved in 2006 for
companies in Estonia (4.84). One can note that companies in Estonia had both the highest VAICTM and Tobin’s Q
results for the period analyzed. This can indicate that a higher level of intellectual capital can be associated with
increased company value.
Table 4 provides the Pearson correlation matrix of the variables included in the study:

• VAICTM is positively correlated with CEE, HCE and SCE, which was as expected since VAICTM is calculated as
the sum of CEE, HCE and SCE;
• In the case of Estonia, there is no significant correlation between VAICTM, its components and company value;
• In the case of Lithuania and Latvia, a positive correlation can be found between CEE, HCE, VAICTM and
company value.
892 Irina Berzkalne and Elvira Zelgalve / Procedia - Social and Behavioral Sciences 110 (2014) 887 – 896

Table 3. Average indicators for companies of Baltic countries, 2005–2011

2005 2006 2007 2008 2009 2010 2011

Latvia
Tobin's Q 0.72 0.67 1.03 0.76 0.58 0.66 0.71
CEE 0.39 0.43 0.41 0.34 0.33 0.42 0.33
HCE 2.43 2.39 2.35 1.75 1.69 1.76 1.77
SCE 0.63 0.44 0.59 0.33 0.76 0.85 0.48
TM
VAIC 3.46 3.26 3.35 2.42 2.78 3.02 2.58
Lithuania
Tobin's Q 1.48 1.20 1.61 1.27 0.90 1.11 0.80
CEE 0.31 0.26 0.41 0.36 0.30 0.41 0.48
HCE 1.58 1.13 1.21 0.85 0.74 0.84 1.00
SCE 0.59 0.56 0.05 0.46 0.69 0.63 0.95
VAICTM 2.48 1.95 1.67 1.78 1.89 1.94 2.33
Estonia
Tobin's Q 1.49 1.38 2.26 1.62 1.07 1.36 1.59
CEE 0.33 0.59 0.58 0.34 0.16 0.32 0.53
HCE 1.69 3.44 3.34 2.93 2.02 3.00 3.00
SCE 0.76 0.80 0.73 0.56 2.24 1.27 0.83
TM
VAIC 2.78 4.84 4.65 3.82 4.43 4.59 4.37

To sum up, company value increases slightly with an increase in the value added intellectual coefficient, capital
employed efficiency (CEE) and human capital efficiency (HCE) in Latvia and Lithuania, whereas this statement is
not applicable in Estonia.
In addition, the Pearson correlation matrix was prepared for two separate years – 2005 and 2010. These years
were selected by taking into consideration the economic situation in the Baltic countries. Year 2005 can be
characterized by high GDP growth and low unemployment, while for year 2010, the opposite is true. Correlation
results of year 2005 and 2010 are included in Table 5. Several differences can be stated:

• In 2005, only correlation between CEE and Tobin’s Q is statistically significant and shows a medium strong
relationship (correlation coefficient of 0.45);
• In 2010, an increase in Tobin’s Q is associated with an increase in CEE (correlation coefficient of 0.424), HCE
(coefficient of 0.281) and VAICTM (coefficient of 0.255);
• The relationship between company value and VAICTM is stronger in 2010 (correlation coefficient is higher and
statistically significant as well).

To sum up, one can find a statistically significant and positive relationship between VAICTM and company value
in Latvia and Lithuania (if one compares countries) and in year 2010 (if one compares years). In addition, there are
significant correlations between company value, human capital efficiency and capital employed efficiency. Overall,
however, mixed results were obtained, if one takes into consideration the results for companies in Estonia and in
year 2005 (upward phase of economic development). Different results between countries could be explained with
diverse capital structure (Berzkalne, 2013). Estonian companies had the highest long-term debt ratio, if compared to
Latvia and Lithuania. Consequently, while Estonian companies had the highest total debt ratio, it mostly consisted
of the (cheaper) long-term debt, which might have led to the highest company value (Tobin’s Q ratio) and VAICTM.
However, different results regarding correlation analysis are puzzling, therefore further research is required.
 Irina Berzkalne and Elvira Zelgalve / Procedia - Social and Behavioral Sciences 110 (2014) 887 – 896 893

Table 4. Pearson correlation matrix for Baltic listed companies, 2005–2011

Country Tobin’s Q CEE HCE SCE VAIC
Estonia Tobin’s Q 0.224 0.183 -0.069 0.151
1
(0.052) (0.114) (0.552) (0.193)
CEE 0.224 0.358** -0.130 0.369**
1
(0.052) (0.001) (0.261) (0.001)
HCE 0.183 0.358** -0.113 0.859**
1
(0.114) (0.001) (0.328) (0.000)
SCE -0.069 -0.130 -0.113 0.399**
1
(0.552) (0.261) (0.328) (0.000)
VAIC 0.151 0.369** 0.859** 0.399**
1
(0.193) (0.001) (0.000) (0.000)
Latvia Tobin’s Q 0.356** 0.201** -0.041 0.216**
1
(0.000) (0.004) (0.564) (0.002)
CEE 0.356** 0.721** -0.040 0.761**
1
(0.000) (0.000) (0.571) (0.000)
HCE 0.201** 0.721** -0.068 0.926**
1
(0.004) (0.000) (0.332) (0.000)
SCE -0.041 -0.040 -0.068 0.291**
1
(0.564) (0.571) (0.332) (0.000)
VAIC 0.216** 0.761** 0.926** 0.291**
1
(0.002) (0.000) (0.000) (0.000)
Lithuania Tobin’s Q 0.289** 0.254** 0.032 0.236**
1
(0.000) (0.001) (0.692) (0.003)
CEE 0.289** 0.364** 0.033 0.445**
1
(0.000) (0.000) (0.681) (0.000)
HCE 0.254** 0.364** -0.054 0.687**
1
(0.001) (0.000) (0.497) (0.000)
SCE 0.032 0.033 -0.054 0.655**
1
(0.692) (0.681) (0.497) (0.000)
VAIC 0.236** 0.445* 0.687** 0.655**
1
(0.003) (0.000) (0.000) (0.000)
**Correlation is significant at the 0.01 level (2-tailed), *Correlation is significant at the 0.05 level (2-tailed).

Table 5. Pearson correlation matrix for Baltic listed companies, 2005 and 2010
Year Tobin’s Q CEE HCE SCE VAIC
2005 Tobin’s Q 0.445** 0.155 -0.170 0.158
1
(0.000) (0.221) (0.180) (0.213)
CEE 0.445** 0.470** 0.053 0.578**
1
(0.000) (0.000) (0.680) (0.000)
HCE 0.155 0.470** -0.012 0.953**
1
(0.221) (0.000) (0.925) (0.000)
SCE -0.170 0.053 -0.012 0.262*
1
(0.180) (0.680) (0.925) (0.037)
VAIC 0.158 0.578** 0.953** 0.262*
1
(0.213) (0.000) (0.000) (0.037)
2010 Tobin’s Q 0.424** 0.281* -0.133 0.255*
1
(0.000) (0.024) (0.297) (0.044)
CEE 0.424** 0.530** -0.099 0.576**
1
(0.000) (0.000) (0.439) (0.000)
HCE 0.281* 0.530** -0.125 0.891**
1
(0.024) (0.000) (0.329) (0.000)
SCE -0.133 -0.099 -0.125 0.317*
1
(0.297) (0.439) (0.329) (0.011)
VAIC 0.255* 0.576** 0.891** 0.317*
1
(0.044) (0.000) (0.000) (0.011)
**Correlation is significant at the 0.01 level (2-tailed), *Correlation is significant at the 0.05 level (2-tailed).

Overall, the authors of this paper recommend combining the traditional company valuation methods with
VAICTM or its components in order to achieve better company valuation. The advantages of the combined model
would be as follows: the valuation model should include not only historical information, but should recognize the
significance of intellectual capital as well; the model should be able to explain the difference between company’s
894 Irina Berzkalne and Elvira Zelgalve / Procedia - Social and Behavioral Sciences 110 (2014) 887 – 896

market value and its book value. This model would be applicable to companies in Latvia and Lithuania, but not in
Estonia.
Existing accounting system is unable to show intellectual capital in reports, and the methodology of value added
intellectual coefficient is essentially based on historical information (taken from historical annual reports). Since
human capital efficiency and capital employed efficiency have the highest results (average indicators in Table 1 and
correlation coefficients with VAIC in Table 2 and Table 3), it can be recommended that new and improved
intellectual capital methodology is based on these indicators. Other component – structural capital efficiency –
show low values and correlation with company value is low as well.
It is necessary to develop a new framework to identify, classify and calculate the value of intellectual capital. In
addition, the new methodology should be able to better explain the difference between company’s book and market
value than the existing methodologies. The authors recommend that one component should be linked to intangible
assets of the company. For example, SFAS (Statement of Financial Accounting Standards) No. 142 (2001) classifies
intangible assets as: R&D costs, software development, patents and copyrights, brands and trademarks, as well as
goodwill value. Some part of intangible assets can be associated with intellectual capital, therefore it can be used on
some level to develop new measures of intellectual capital, which in turn can help explain the difference in book and
market value of the company more efficiently.

5. Conclusions and recommendations

The research covered 65 Baltic listed companies over the period from 2005 to 2011. The study used correlation
analysis to provide an empirical investigation of the impact of intellectual capital on company value. As a proxy for
company value, the Tobin’s Q was used, and as a proxy for intellectual capital, the value added intellectual
coefficient (VAICTM) was employed.
The study finds that an increase in intellectual capital should increase the value of the company. Yet empirical
results by other authors are inconsistent, and this study obtained mixed results as well. There is a statistically
significant and positive relationship between intellectual capital and company value for enterprises in Latvia and
Lithuania, whereas such correlation was not observed for companies in Estonia.
It is recommended to combine the traditional company valuation methods with the value added intellectual
coefficient or its components in order to achieve better company valuation. In addition, for further valuation
improvement, it is necessary to review and modify how the value of intellectual capital is calculated. The results of
this research show that human capital efficiency and capital employed efficiency can be still used in order to
calculate the intellectual capital, however structural capital efficiency is not significant in the case of intellectual
capital and company value.
Since in this study included Baltic listed companies, which represent different industries, the future research
should consider industry-based analysis as well.

Acknowledgements

This work has been supported by the European Social Fund within the project “Support for Doctoral Studies at
University of Latvia”.

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