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Valuation of Intellectual Capital: the Performance Contribution Model

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  • Ibrahim Elsiddig Ahmed

    (Ajman University)

Abstract

This study aims to suggest a measurement of intellectual capital (IC) based on its contribution to generating additional returns that result from efficient and effective use of investments in IC as compared to the investment in other assets. The study develops a derivative model composed of 17 equations to measure the value of IC through the contribution approach measured by the participation of IC in generating revenues (Eq. 16) and explains how additional investment in IC will lead to additional earnings. The study constructs a relationship between the value of the investment in IC and its effectiveness in generating revenues and profits of the firm. It also considers the size and leverage as control variables to reduce the impact of exogenous factors. To investigate the contribution of IC, the study analyzed the financial data of all the 21 UAE national banks over a 5-year period (2015–2019). The model determines the optimal investment in IC that results in the maximum value of profits of a bank. The main findings of the study are significant positive relationship between the IC contribution and investment in IC (0.498), IC contribution, and earnings (0.219); IC contribution has a significant negative relationship with the bank size (−0.238); and a significant positive relationship between increase in earnings and increase in investment in IC (0.171). The model adds a new body of knowledge to the literature and helps practitioners to assess the contribution of the IC and optimal investment in IC. The model measures IC based on the bank’s annual performance. In the future, research may be extended to other sectors and contexts.

Suggested Citation

  • Ibrahim Elsiddig Ahmed, 2023. "Valuation of Intellectual Capital: the Performance Contribution Model," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 14(3), pages 3353-3373, September.
    • Handle: RePEc:spr:jknowl:v:14:y:2023:i:3:d:10.1007_s13132-022-00942-x
    DOI: 10.1007/s13132-022-00942-x
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    References listed on IDEAS

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    More about this item

    Keywords

    Intellectual capital; IC performance approach; IC derivative model; Investment in IC; IC contribution;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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