Intellectual capital and market performance: The case of multinational R&D firms in the U.S.

Intellectual capital (IC) is considered as a key resource in business. However, it is difficult to measure and compare across firms due to its intangible nature. The Value Added Intellectual Coefficient (VAIC) model proposed by Pulic (1998; 2000) might be used to overcome these issues. The purpose of this study is to apply the VAIC model to investigate the impact of IC on market performance among R&D engaging firms. The sample for this study comprises multinational firms listed on the United States (U.S.) stock exchanges which engaged in R&D activity during the period 2006-2013. The sample employed consists of 1,328 firm-year observations and the data were obtained from the Compustat database. Market performance is measured using the market-to-book ratio and Tobin’s q ratio. The study employs the VAIC model to measure aggregate IC efficiency and its elements: human capital efficiency, structural capital efficiency and tangible capital efficiency. The study also controls for the effects of size, leverage, year and industry on market performance. The data were analyzed using descriptive, correlation and multiple linear regression analyses. From the regression analysis, the results indicate that aggregate IC efficiency has a positive and significant association with market performance among R&D firms. However, among the components of aggregate IC efficiency, human capital efficiency has no significant association with R&D firms’ market performance while structural capital efficiency and tangible capital efficiency have a positive and significant association with market performance. The findings suggest that the synergy derived from the combination of IC and tangible resources has a significant influence on the market valuation of R&D firms. The finding also suggests the importance of structural and tangible capital over human capital in R&D engaging firms. The findings provide not only empirical evidence on the relationship between IC and market performance among R&D engaging firms, but also provides important further evidence on the VAIC model as an IC measurement method. Empirical studies to date have found mixed evidence on the adequacy of the VAIC model. In respect of structural and tangible capital the results of this study provide support for the VAIC model; but not in respect of human capital.