The Impact of Intellectual Capital on Investors' Capital Gains on Shares: An Empirical Investigation of Thai Banking, Finance & Insurance Sector
Appuhami, B. A. Ranjith, International Management Review
The purpose of this article is to investigate the impact of the value creation efficiency on investors' capital gains on shares. To investigate the impact of corporate value creation efficiency on investors' capital gains, the author used the data collected from listed companies in Thailand's stock market and Pulic's (1998) Value Added Intellectual Coefficient (VAIC TM) as the measure of intellectual capital and a developed multiple regression model. The empirical research found that firms' intellectual capital has a significant positive relationship with its investors' capital gains on shares. The findings enhance the knowledge base of intellectual capital and develop a concept of intellectual capital in achieving competitive advantages in emerging economies such as Thailand's.
[Keywords] Intellectual capital; Capital gain; banking; finance and insurance sector
An extensive research has been carried out on Intellectual capital, since the financial accounting does not explain the increasing gap between a firm's market value and its book value (e.g. Lev and Zarowin, 1999; Lev, 2001; Lev and Radhakrishnan, 2003). Simply, a firm's market value exceeding its book value has been defined as intellectual capital (Edvinsson and Mal one, 1997). The intellectual capital of a firm plays a significant role in the modern approach of value creation. Especially, firms in technology and service industries recognize intellectual capital as the major knowledge base that contributes to the creation of a competitive advantage for the firm (Huei-Jen Shiu, 2006). The determinants of intellectual capital, such as human capital and structural capital created in customers, process, databases, brands, and systems (Edvinsson and Malone, 1997), have been recognized as the factors that determine corporate well being (Bornemann 1999; Pulic 2000; Firer & Williams 2003; Mavridis 2004). The theory of stakeholder view (Donaldson and Preston, 1995), which demonstrates that stakeholder relationship constitutes all the forms of relationship of a firm with its stakeholders, such as investors, government, customers, employees, suppliers and general public etc., is similar to the concept of intellectual capital.
Even though intellectual capital is recognized as a major corporate asset capable of generating sustainable competitive advantages and superior financial performance (Barney, 1991), it is still difficult to find an appropriate measure of intellectual capital. Pulic (2000a, b) proposed Value Added Intellectual Coefficient (VAIC) as an indirect measure of efficiency of value added by corporate Intellectual Capital. The VAIC method provides the information about the efficiency of tangible and intangible assets that can be used to generate value to a firm (Pulic, 2000a, b). Financial capital (monetary and physical), human capital, and structural capital have been recognized as major components of VAIC. A higher value for VAIC shows a greater efficiency in the use of firm capital, since VAIC is calculated as the sum of capital employed efficiency, human capital efficiency, and structural capital efficiency. The composition of these three components of capital, which are similar to the concept of Skandia Navigator (Bontis, 1999), vary from industry to industry and from firm to firm, depending on their nature of business and strategy. These three components of capital determine the degree of value added by each product and/or service.
The research is based on the banking, finance, and insurance industries in Thailand. The dividend policy of most of the companies in these industries is to pay no dividend or a very small amount. Thus, the research examines the capital gain (instead of market return, which includes both capital gain and dividend yield) in relation to VAIC and its components. Capital gain refers to the profit earned by investors by selling shares in the secondary market (Ross, Western eld, Jaffe, 2005). …