Direct and indirect effects of human capital on firm value: evidence from Italian companies

Abstract

PurposeThe purpose of this paper is to examine whether information on intellectual capital (IC) is value relevant for investors and the role played by the single components of IC (human capital, organizational capital, relational capital) in creating firm value.Design/methodology/approachThe 1995 Ohlson model has been employed to investigate the relationship between the current accounting measures (book value and earnings) and future measures of profitability, proxied by IC. The Value Added Intellectual Coefficient (VAIC™) approach is used to determine the firm's efficiency in using IC resources. The sample analysis analyzed is constituted of financial sector companies listed on the Italian Stock Exchange for the period 2006‐2008.FindingsThe findings fully confirm the existence of a positive relationship between accounting values and market value on the one hand and IC components as measured by VAIC™ and market value on the other. Results show that investors attach more value relevance to human capital efficiency (HCE) than to structural capital efficiency (SCE) and that HCE plays an indirect role in the relation between IC and market value.Research limitations/implicationsThe paper is focused on one sector (financial) and one country (Italy). The focus on the entire financial sector allows the authors to validate results from an Italian perspective and to extend them for similar banking structures in other countries, and to favor comparisons with other similar studies.Practical implicationsThe main implications for financial company managers are that, when developing a strategy aimed at strengthening IC, they should consider that human capital plays an indirect part with regard to the other components and that each investment in one of the IC subcategories should not be evaluated in isolation but in relation to its interactions.Originality/valueThe paper realizes a fusion between value relevance and IC literature. To the best of the authors' knowledge, this is the first paper that examines the relationship between VAIC™ and the market value of the Italian financial sector, using an Ohlson model modified to include IC information, comprehensive of the human capital indirect effect.

Enterprise Value and Intellectual Capital: Study of BSE 500 Firms

“…Tseng and James Goo ( In a study, conducted by Pina Puntilo (2009) on Italian banking industry revealed different results and proved that there is negative relationship between market value and IC. In another study in Italy, conducted by Veltri and Silvestri (2011), the findings of their study show a significant relationship between IC and the market value of firms. Pal and Soriya (2012) made an attempt to explore the relationship between value added intellectual coefficient and M/B ratio of Textile and pharmaceutical companies in India and found no significant association between the two.…”

Fama–French in China: Size and Value Factors in Chinese Stock Returns

“…Studies of non‐US markets Fama and French (), Brückner et al (), Michou et al (), Veltri and Silvestri (), Moerman (), Nartea et al (), Chou et al (), Docherty et al (), Cordeiro and Machado (), Agarwalla et al (), Drew and Veeraraghavan (), among others.…”

Value and risk dynamics over the innovation cycle

“…A number of papers have found a positive relation between intellectual capital and firm value and performance (Chen et al, 2005;Orens et al, 2009;Veltri and Silvestri, 2011). Yet, little research explicitly addresses the role of a firm's intellectual capital or its components in the R&D process.…”