The Effect of Intellectual Capital and Revenue Growth on Firm

Value

Zakiah Ulfa, Khusnul Prasetyo

Department of Accounting, Universitas Airlangga, Surabaya, Indonesia

khusnul.prasetyo@feb.unair.ac.id

Keywords: Firm Value, Intellectual Capital, Revenue Growth.

Abstract: The purpose of this research is to re-examine the effect of intellectual capital (IC) and revenue growth on

Indonesian construction firms’ value. Furthermore, this study aims to determine whether this labor-intensive

industry benefits from the development of intellectual capital. Using purposive sampling, the empirical data

was drawn from 45 construction firms listed on the Indonesian Stock Exchange (IDX), observed over a five-

year period (2010-2014). Multiple regression models were examined in order to test the hypotheses, and the

results show that IC has a positive effect on firm value.

1 INTRODUCTION

The development of information technology and

corporate globalization has led to firms shifting from

physical to knowledge-based assets. A firm’s ability

to manage and increase its intangible assets has

increased in recent years. In this regard, firms have

shifted their strategies from labor-based businesses

to intellectual-based businesses (Sawarjuwono &

Agustine, 2003). Further, to improve their

competitiveness, knowledge-based businesses rely

more on knowledge assets than physical assets.

According to Marr and Schiuma (2004),

knowledge assets include innovation, information

systems, organizational management, and human

resources. Knowledge assets, or intellectual capital

(IC), are believed to add value to a firm. Intellectual

capital itself relates to the possession of knowledge,

applied experience, information technology,

customer relationships, and professional skills that

can enhance a firm’s competitive advantage. This

definition refers to more than just human, structural,

and relational resources – it is also related to how

resources are used to create firm value (Edvinsson,

2013).

Many studies have found an association between

intellectual capital and firm value. Gozali and

Hatane (2014), Oktavia (2014), Prasetyanto (2013),

and Son (2012) found that the performance of

intellectual capital positively affects firm value, as

measured by Tobin’s Q, EPS, and PBV. Such results

are in contrast to Laksana (2013) and Lestari (2015),

who have suggested that there is no significant effect

between IC and firm value, as measured by PBV and

Tobin’s Q.

The Indonesian construction industry is a labor-

intensive industry, where human resources are vital,

despite the use of tools and machinery. Findings on

this specific industry may shed light on whether

such an industry benefits from the latest shift in

corporate strategy, and, in this regard, re-examining

the connection between intellectual capital and firm

value is deemed necessary. Furthermore, the

construction industry experienced positive growth

during the five years from 2010 to 2014. Firms

within the industry also experienced an increase in

their gross incomes (Central Bureau of Statistics,

2015).

Based on research conducted by Sofyaningih and

Hardiningsih (2011) and Sujoko and Soebiantoro

(2007), market growth has a significant effect on

firm value. Increased business revenues give

investors confidence that a firm will deliver high

stock returns. However, different results were found

by Deitiana (2011) and Rosy (2013), who stated that

a firm’s revenue growth does not affect firm value.

In some studies, it was found that investment

decisions are also affected by firm size. The size of a

firm can be seen from the size of its assets. A large

asset size indicates that the firm is relatively more

stable than small firms and more able to generate

income and profit, in addition to providing more

certainty about growth opportunities in the future.

422

Ulfa, Z. and Prasetyo, K.

The Effect of Intellectual Capital and Revenue Growth on Firm Value.

In Proceedings of the Journal of Contemporary Accounting and Economics Symposium 2018 on Special Session for Indonesian Study (JCAE 2018) - Contemporary Accounting Studies in

Indonesia, pages 422-428

ISBN: 978-989-758-339-1

The research conducted by Sofyaningsih (2011)

suggests that the control variable in the form of firm

size has a positive effect on firm value.

This section is followed by an overview of the

literature and an outline of the research methods and

research results, after which concluding comments

will be made.

2 LITERATURE REVIEW AND

HYPOTHESES

DEVELOPMENT

2.1 Literature Review

2.1.1 Resource-Based Theory

According to resource-based theory (RBT), there are

three types of corporate resources: physical

resources (e.g. factories, offices, warehouses,

buildings, and machinery), human resources (e.g.

performance, knowledge, and employee experience),

and structural or operational resources (e.g.

information systems and internal and external

relationships). These three resources are believed to

contribute to a firm’s efforts to achieve competitive

advantage in the market. Resource-based theory

stresses that firms should be able to acquire and

manage their resources, especially those in the form

of intangible assets, so as to create competitive

advantage for the firm (Wigati, 2013).

2.1.2 Signaling Theory

Signaling theory illustrates the importance of

information disclosures from internal to external

parties. The disclosed information will be responded

to by investors in a way that will signal positive or

negative intentions. Further, this signal will affect

the value of the firm in the eyes of investors, in that

a good signal will be responded to positively by

investors and effect their decision whether to invest

in the firm. One source of information that can

represent a firm’s future prospects is revenue growth.

In this sense, increased revenues are usually a signal

that the firm will continue to grow (Yudhanti, 2011)

and will be responded to positively by investors.

Such a positive response will increase stock prices

and further increase the value of the firm.

2.1.3 Intellectual Capital

Intellectual capital (IC) refers to the intangible value

of a firm and the firm’s future profit-making

capability based on human capital, structural capital,

and customer capital (Edvinsson, 2013). In addition,

IC can be understood as the knowledge, applied

experience, information technology, customer

relationships, and professional skills owned by the

firm that can enhance competitive advantage. IC

consists of three components:

structural/organizational capital, relational capital,

and human capital (Sawarjuwono & Agustine, 2003).

Several methods of measurement are appropriate for

IC, including the Direct Intellectual Capital

Approach (DIC), Market Capitalization Approach

(MCM), Return on Assets Approach (ROA), and

Scorecard Approach (SC).

2.1.4 Revenue Growth

The growth of a firm is very important for both

internal and external parties. On the internal side, a

firm’s growth is a benchmark for corporate success

and a good indication of future corporate prospects.

For external parties (especially investors), a firm’s

growth is seen as a favorable sign for investors as it

will be expected to provide a good rate of return for

their investment. According to Deitiana (2011), firm

growth, as measured by the change in income levels,

is one of the indicators for assessing the prospects of

a firm in the future. Firms that exhibit low income

levels will potentially experience a decrease in

profits, which indicates that the potential for growth

is poor (Sofyaningsih & Hardiningsih, 2011).

2.1.5 Firm Value

Firm value relates to the perception of investors

regarding a firm’s level of success, and it is closely

related to the stock price (Sujoko & Soebiantoro,

2007). The higher the stock price, the higher the

value of the firm in the eyes of investors. In this

sense, the market will believe in the performance

and growth potential of a firm in the future if the

firm’s value is high. There are several methods to

measure the value of a firm, one of which is Tobin's

Q, which provides a description of a firm’s value

from an investor’s perspective (Gozali & Hatane,

2014). This ratio is considered to provide the most

useful information because it demonstrates that the

firm does not only focus on investors in the form of

shares (capital) but also on its creditors, considering

that operating finance also comes from loans granted

The Effect of Intellectual Capital and Revenue Growth on Firm Value

423

by creditors. The greater the value of Tobin’s Q, the

greater the potential for firm growth.

2.2 Hypotheses Development

2.2.1 The Effect of Intellectual Capital on

Firm Value

Highly skilled and competent human resources

represent a competitive advantage for the firm if

they can be well utilized and managed, thus

affecting the firm’s performance and productivity.

Increased productivity will increase a firm’s profit

and value.

According to Pulic and Kolakovic (2003), each

firm has intangible resources that can be used to

create ‘value’ in the market. Resource management

can help firms to achieve competitive advantage and

increase productivity and market value. Intellectual

capital (IC) is an intangible resource that is believed

to be part of a firm’s prime resources and is

influential in the creation of competitive advantage.

The first hypothesis in this study is as follows:

H1: Intellectual capital has a positive effect on

firm value.

2.2.2 The Effect of Revenue Growth on Firm

Value

Increased revenues indirectly signal a firm’s growth

in terms of production and marketing (assuming no

significant cost increases). In accordance with

signaling theory, firms should disclose information

about the firm to external parties in order to avoid

asymmetric information, and this disclosure will be

responded to by investors. One important disclosure

is the firm’s revenue. In this sense, increased

corporate revenues indicate good prospects in the

future, which will be responded to positively by

investors. A positive response from investors will

increase the stock price and also the value of the

firm. Based on the above, the second hypothesis in

this study can be formulated as follows:

H2: Revenue growth has a positive effect on firm

value

2.3 Conceptual Framework

Intellectual capital has a significant effect on

corporate value because it is an intangible resource

that is believed to be included in a firm’s prime

resources and influential in the creation of

competitive advantage. Positive growth in income

represents good future prospects, and therefore the

value of the firm will increase. Firm size is also

considered to have a role in the formation of

corporate value in that a large asset size will signal

the firm’s future prospects. In accordance with this

explanation, the conceptual framework in this study

is as follows:

Figure 1: Conceptual Framework

3 METHODOLOGY

3.1 Identification and Definition of

Operational Variables

This study uses three types of variables, i.e.

independent variables, a control variable, and a

dependent variable, all of which can be outlined as

follows:

1. Independent variables: Intellectual Capital (X1)

and Revenue Growth (X2)

2. Dependent Variable: Firm Value (Y1)

3. Control Variable: Firm Size (X3)

3.1.1 Intellectual Capital (X1)

According to Edvinsson (2013), IC relates to the

ownership in knowledge, applied experience,

information technology, customer relationships, and

professional skills that can enhance competitive

advantage for a firm. Intellectual capital in this

research is measured by the market-to-book value

using the following formula:

IC =Market Value of Equity – Book Value of Equity

IC = MVE – BVE …………………………. (1)

Independent

Dependent

Variable

Intellectual

Revenue

Growth (X2)

Control

Firm Size (X3)

Firm Value (Y)

JCAE Symposium 2018 – Journal of Contemporary Accounting and Economics Symposium 2018 on Special Session for Indonesian Study

424

Explanation:

MVE = market share price x number of common

shares outstanding

BVE = total assets – total liabilities = total equity

3.1.2 Revenue Growth (X2)

Revenue is the income incurred during a firm’s

normal business activities (Statement of Financial

Accounting Standard No. 23 [Revised, 2009]).

According to Laurensia (2015) and Pouraghajan

(2013), the calculation for revenue growth is as

follows:

  















…………… (2)

3.1.3 Firm Value (Y1)

Firm value relates to the perception of investors

regarding the level of success of a firm, which is

closely related to the share price (Sujoko &

Soebiantoro, 2007). There are several methods to

measure firm value, one of which is Tobin’s Q,

which has the following formula:





  





 ……………………… (3)

Explanation:

MVE = market share price x number of common

shares outstanding

BVE = total assets – total liabilities = total equity

Debt = total liabilities

3.1.4 Firm Size (X3)

According to Pradipta (2011), firm size is a scale

that describes the size of a firm. In this regard, the

size of a firm can be seen from the total assets

owned because the total assets can describe the

amount of the firm’s wealth. Firm size can be

calculated using the following formula:

Firm Size = Ln of Total Assets …………… (4)

3.2 Population and Sample

The population in this study was all the construction

firms listed on the Indonesian Stock Exchange,

while the sample was selected using purposive

sampling. In this sense, the sample selection was

based on the criteria that the firms had published

annual reports for the years 2010-2014. Nine firms

were sampled in this study, and therefore the total

sample size was 45.

3.3 Analytical Technique and Hypotheses

Testing

The analytical technique used in this research was

multiple regression analysis, while hypothesis

testing was performed using a determinant

coefficient test and a significance test of individual

parameters (t-test), with a significance level of <0.05.

4 RESULTS AND DISCUSSION

4.1 Analysis Model and Hypothesis

Testing

The data analysis technique used in this research

was a multiple regression test, which was performed

on two independent variables (IC and GROWTH),

one control variable (SIZE), and one dependent

variable, i.e. Value (NILAI). The multiple regression

equations for this study are as follows:

NILAI = -1,282 + 0,202 IC – 0,024 GROWTH –

0,102 SIZE ………………… (5)

The independent variable IC has a regression

coefficient of 0.202, with a significance level of

0.000. The value of the significance is smaller than

0.05, so it can be said that IC has an effect on NILAI.

The regression coefficient shows a positive result

(0.202), meaning that the effect of IC on NILAI is

positive. In this sense, the first hypothesis, i.e.

intellectual capital has a positive effect on firm value,

is accepted.

Table 1: Results of the Multiple Regression Calculations

Variable

Regression

Coefficient

()

Significa

nce

(Constant)

GROWTH

SIZE

1,282

0,202

-0,024

-0,102

0,845

7,6

0,157

1,799

0,403

0,000

0,876

0,079

0,772

0,596

Source: Results of the Data Processing

The independent variable GROWTH has a

regression coefficient of -0.024, with a significance

level of 0.876. The value of significance is greater

The Effect of Intellectual Capital and Revenue Growth on Firm Value

425

than 0.05, so it can be said that GROWTH has no

significant effect on NILAI. The regression

coefficient shows a negative result (-0.024),

meaning that the effect of GROWTH on NILAI is

negative. Thus, the second hypothesis, i.e. income

growth has a positive effect on firm value, is

rejected.

4.2 Determinant Coefficient

The determinant coefficient shows how big of an

effect the independent and control variables have on

the dependent variable. If the coefficient is close to 1,

then the independent and control variables strongly

affect the dependent variable, whereas if the

coefficient value is close to 0, then the independent

and control variables have less or no effect on the

dependent variable. The value of the determinant

coefficient (R2) is 0.596, meaning that the

independent and control variables are strong enough

to affect the dependent variable; in other words,

59.6% of NILAI is affected by IC, GROWTH, and

SIZE, while the remaining 40.4% is affected by

other factors or by variables that have not been

examined.

4.3 The Effect of Intellectual Capital on

Firm Value

The results of this study are consistent with the

research conducted by Hatane (2014), Oktavia

(2014), Prasetyanto (2013), and Son (2012), which

found that intellectual capital has a significant

positive effect on firm value. However, the results of

this study are contrary to those of Laksana (2013)

and Lestari (2015), who found that IC has no effect

on firm value.

The existence of a positive effect of IC on

construction firms’ NILAI indicates that firms are

very concerned not only about the quantity but also

the quality of the human resources owned. In

addition, the firms also invest heavily in intellectual

capital, such as the development of technology and

information, continuous learning, and strong

relationship between firms and their business

partners, so as to increase firm value.

Based on the above calculations, intellectual

capital has a significant effect on the establishment

and improvement of firm value. In this sense, a firm

wishing to improve its value would be expected to

further improve and develop its intellectual capital.

This can be done by organizing employee training

programs as well as supporting the certification

process of experts for employees in their respective

fields. The firm would also be expected to improve

the technology used, establish and maintain good

relationships with customers and suppliers, and carry

out development and learning in all areas and

aspects of sustainably.

4.4 The Effect of Revenue Growth on

Firm Value

The results of this study are consistent with the

research conducted by Pantow (2015), which

examined 20 firms, including LQ45, in the period

2009-2013. Pantow (2015) found that sales growth

(revenue) has no significant effect on firm value.

This results of this study are also consistent with

those of Rosy (2013), who found that sales growth

has no significant effect on the value of

manufacturing firms listed on the Indonesian Stock

Exchange.

Revenue growth has no significant effect on firm

value because prospective investors assume that this

information is not important to making investment

decisions. In this sense, they believe that revenue

itself does not reflect a firm’s net results due to the

fact that it still has to be reduced by operational

costs, so it does not reflect the activities and

effectiveness of the firm with regard to its overall

operation (Dramawan, 2015). The calculation of

revenue growth (positive or negative) from year to

year is thus allegedly unable to contribute to the

establishment and improvement of value for the firm

(Hermansyah, 2013).

The results of the hypothesis testing in this study

are different from those of Sofyaningsih and

Hardiningsih (2011), who found that firm growth

measured by means of revenue growth had a

significant positive effect on the value of

manufacturing firms listed on the Indonesian Stock

Exchange during the period 2007–2009.

4.5 The Effect of Firm Size on Firm

Value

Hypothesis testing for the control variable in the

form of firm size (SIZE) shows a regression

coefficient of -0.102 and a level of significance of

0.079. This significance value is greater than 0.05,

so it can be concluded that the size of the firm has

no significant effect on firm value.

JCAE Symposium 2018 – Journal of Contemporary Accounting and Economics Symposium 2018 on Special Session for Indonesian Study

426

5 CONCLUSIONS, LIMITATIONS,

AND FUTURE RESEARCH

DIRECTION

Based on the results of the analysis, it can be

concluded that intellectual capital has a positive

effect on firm value, whereas revenue growth has no

significant effect on firm value; therefore, firms are

expected to further develop their intellectual capital

and conduct development and learning in all aspects

of sustainably. This study used a control variable in

the form of firm size, and the results show that firm

size has no significant effect on firm value.

A limitations of this study is that the sample size

was limited to nine firms and five reporting periods,

so the results cannot be generalized to other

industries. In addition, the measurements for

intellectual capital, firm growth, and firm size were

selected for certain reasons, so the results found

would be different if other measurements were used.

In this regard, future research should increase the

number of research samples by examining other

industries with a larger number of firms or by

focusing on the industrial sector. With regard to the

measurement of intellectual capital, firm growth,

and firm size in future research, it would be

advantageous to use other measurement methods,

which may possibly provide better results.

REFERENCES

Deitiana, T. (2011). Pengaruh Rasio Keuangan,

Pertumbuhan Penjualan dan Dividen Terhadap

Harga Saham. Jurnal Bisnis dan Akuntansi, 13

(1): 57-66

Dramawan, I. (2015). Pengaruh Risiko Keuangan

dan Pertumbuhan PenjualanTerhadap

Profitabilitas Perusahaan dan Nilai Perusahaan

pada Perusahaan Property di Bursa Efek

Indonesia. Tesis Tidak Diterbitkan. Denpasar:

Program Pascasarjana Studi Manajemen

Universitas Udayana

Gozali, A., & Saarce, E. (2014). Pengaruh

Intellectual Capital Terhadap Kinerja Keuangan

Dan Nilai Perusahaan Khususnya Di Industri

Keuangan Dan Industri Pertambangan Yang

Terdaftar Di Bursa Efek Indonesia Tahun 2008 –

2012. Business Accounting Review, 2 (2): 208-

217

Laksana, A. (2013). Hubungan Intellectual Capital,

Kinerja Keuangan dan Nilai Perusahaan Saat

IPO. Skripsi Tidak Diterbitkan. Semarang:

Fakultas Ekonomika dan Bisnis Universitas

Diponegoro

Laurensia, T., & Saarce, E. (2015). Pengaruh

Intellectual Capital Dalam Kinerja Keuangan

Dan Nilai Perusahaan. Business Accounting

Review, 3 (1): 33-44

Lestari, W. (2015). Pengaruh Corporate Social

Responsibility (CSR), Good Corporate

Governance (GCG), dan Intellectual Capital (IC)

Terhadap Nilai Perusahaan dengan Metode

Tobin’s Q pada Perusahaan Sri-Kehati Yang

Terdaftar di BEI Tahun 2009-2013. Prosiding

Penelitian SPeSIA, 1 (1): 92-97

Marr, B., Schiuma, G., & Neely, A. (2004). The

Dynamics of Value Creation: Mapping Your

Intellectual Performance Drivers. Journal of

Intellectual Capital, 5 (2): 12-25

Oktavia, C., & Daljono. (2014). Pengaruh

Intellectual Capital Terhadap Kinerja Keuangan,

Pertumbuhan, dan Nilai Pasar Perusahaan.

Diponegoro Journal of Accounting, 3 (3): 1-15

Pantow, M. (2015). Analisa Pertumbuhan Penjualan,

Ukuran Perusahaan, Return On Asset, Dan

Struktur Modal Terhadap Nilai Perusahaan Yang

Tercatat Di Indeks LQ45. Jurnal EMBA, 3 (1):

961-971

Pouraghajan, A. (2013). Impact of Intellectual

Capital on Market Value and Firm’s Financial

Performance: Evidences from Tehran Stock

Exchange. World of Sciences Journal, 1

(12):197-208

Pradipta, H., & Anna, P. (2011). Pengaruh Luas

Pengungkapan Tanggung Jawab Sosial Dan

Lingkungan Perusahaan Terhadap Earning

Response Coefficient (ERC), Dengan Ukuran

Perusahaan Dan Leverage Sebagai Variabel

Kontrol. Yogyakarta: Universitas Atma Jaya

Yogyakarta

Prasetyanto, P., & Anis, C. (2013). Pengaruh

Struktur Kepemilikan dan Kinerja Intellectual

Capital Terhadap Nilai Perusahaan. Diponegoro

Journal of Accounting, 2 (2): 1-12

Putra, I. (2012). Pengaruh Modal Intelektual Pada

Nilai Perusahaan Perbankan Yang Go Public Di

Bursa Efek Indonesia. Jurnal Ilmiah Akuntansi

dan Humanika, 2 (1): 1-22

The Effect of Intellectual Capital and Revenue Growth on Firm Value

427

Rosy, M. (2013). Analisis Faktor Internal dan

Eksternal Perusahaan Terhadap Nilai

Perusahaan Pada Perusahaan Manufaktur Di

Bursa Efek Indonesia. Surabaya: Fakultas Bisnis

Universitas Katolik Widya Mandala Surabaya

Sawarjuwono, T., & Agustine, P. (2003). Intellectual

Capital: Perlakuan, Pengukuran dan Pelaporan

(Sebuah Library Researh). Jurnal Akuntansi &

Keuangan, 5 (1): 35-57

Sofyaningsih, S., & Pancawati, H. (2011). Struktur

Kepemilikan, Kebijakan Dividen, Kebijakan

Utang dan Nilai Perusahaan. Dinamika

Keuangan dan Perbankan, 3 (1): 68-87

Sujoko & Ugy, S. (2007). Pengaruh Struktur

Kepemilikan Saham, Leverage, Faktor Intern

Dan Faktor Ekstern Terhadap Nilai Perusahaan.

Jurnal Manajemen Dan Kewirausahaan, 9 (1):

41-48

Wigati, I. (2013). Pengaruh Intellectual Capital

Terhadap Kinerja Keuangan Perusahaan

Konstruksi Dan Real Estate Yang Listing Di BEI

2009-2011

Yudhanti, B., & Josepha, C. (2011). Intellectual

Capital dan Ukuran Fundamental Kinerja

Keuangan Perusahaan. Jurnal Akuntansi Dan

Keuangan, 13 (2), 57-66

JCAE Symposium 2018 – Journal of Contemporary Accounting and Economics Symposium 2018 on Special Session for Indonesian Study

428