The Efficiency Of Intellectual Capital Investments As A Potential Leading Indicator

Abstract

This paper aims to test the VAIC model in order to explore and recognize the relationship between Intellectual Capital (IC) components and the financial performance of companies, with an ambition to establish whether IC investment efficiency indicators can serve as potential leading indicators of the future financial performance of companies. We test our hypotheses by using the VAIC model. The data set includes more than 12,000 Slovenian companies within a 14-year period (from 1995 to 2008). OLS regression and panel regression method are used as tools. Most of the research hypotheses have been confirmed, but the results are of limited practical use. In contrast to the primary test, our test conducted on the ranked data indicates a high degree of correspondence between the improvement in rank of a companys IC investment efficiency and the improvement in rank of its financial performance in the peer group. As IC value is a result of above-average financial performance, the IC investment efficiency can potentially serve as leading indicators of future financial performance. By comparing the results of similar studies, we indicate possible systematic biases as potential sources of differences in the results, and suggest the areas that need further investigation.