An Examination of the Value Relevance of Intellectual Capital: The Case of Banking Industry

Abstract

This study examines the value relevance of intellectual capital (IC) to investors. In this respect, associations of IC with contemporaneous market valuation, stock returns, excess returns and share prices are initially tested. In addition, associations for current IC and future data of the above stock performance indicators are estimated to investigate whether the selected performance indicators have delayed response to IC. Pulic’s VAICTM method is selected to measure IC and fixed effects panel regressions are used to analyse data of 191 NYSE listed banking sector firms over 2000-2011. Results of contemporaneous analysis fail to establish conclusive associations between IC and selected stock performance indicators. Analyses to test the delayed reactions evident that contemporaneous IC relates significantly negatively with market valuation and stock returns, and significantly positively with excess returns and stock prices. This suggests that investors perceive IC as firm-specific risk related investments which account for uncertain future benefits. Evidence for investor relevance based on adopted stock performance indicators in this study, and delayed reaction analysis add new attributes to extant IC performance literature.