The Role of Intellectual Capital as a Determinant of Firm Value

The twofold purpose of this chapter is to provide a detailed literature review on the relationship between intellectual capital and firm value and to present an empirical study of this relationship in developing countries. The originality of this study lies in the use of the multilevel modeling method to analyze a large cross-country data set of 12,331 firms from 26 countries. The efficiency of intellectual capital is measured with value-added intellectual coefficient. Market value, earnings quality, return on asset, and return on equity are employed as proxies of firm value and performance. Variance coefficient and random intercept models are estimated. The findings imply that the efficient management of intellectual capital increases the profitability of sample firms. However, no significant relationship is detected between intellectual capital and market value. These results indicate that intellectual capital increases firm profitability in developing countries. However, investors in these countries do not count intellectual capital in their valuation processes. Managers can increase their firms’ profitability by efficient management of intellectual capital in developing countries.