Intellectual Capital and Firm Performance
Evidence from Indonesia
Budi Yuda Prawira and Rahmat Setiawan
Departement of Management, Faculty of Economics and Business, Universitas Airlangga, Jl. Airalngga 4-6, Surabaya,
Indonesia
Keyword: Intellectual Capital, Value Added Capital Employed, Value Added Human Capital, Structural Capital Value
Added, Return on Asset, Return on Equity, Market-to-Book Ratio
.
Abstract: This study aims to examine the effect of intellectual capital and its components such as value added capital
employed, value added human capital, and structural capital value added on firms performance. Intellectual
capital was measured using pulic’s models, while firms performance measured by return on asset, return on
equity, and market- to-book ratio. The samples are 102 firms in the manufacturing industry sector listed in
Indonesia Stock Exchange over the time window 2012-2016. Multiple regression analysis have been utilized
to test the hypothesis. The result showed that intellectual capital has a significant positive effect on return on
asset, return on equity, and market-to-book ratio. In addition, the result show that value added capital employed,
a component of intellectual capital was found to be the most influential value drivers for firm performance
than value added capital employed and structural capital value added. This findings suggest that having large
capital employed and good managing on it, enabling firm to improve financial performance and their maket
value.
1 INTRODUCTION
The biggest problem of investors is making an
appropriate investment decision. An investor must
have accurate information related to the target
company as a basis for making investment decisions.
So far, firms that listed on the Indonesia Stock
Exchange only provide general information through
financial statements that published every year.
Meanwhile, there is more important information that
should be known by investors that become a
competitive advantage of the firms as key success of
their performance, it is intellectual capital (Ross et al.
1997).
Intellectual capital according to Stewart (1997) is
an intangible asset of a company, it can be
knowledge, information, experience of human
resources and company organization. Mouritsen et al.
(2001) said that the difference between the market
value and the book value of a company is a result of
the development of the company's intellectual capital.
The existence of a large difference between the real
value of the company and its market value illustrates
the market conditions are not good.
Based on data obtained from the IDX Factbook,
during period 2012-2016 the average PBV of all firms
listed on the Indonesia Stock Exchange is 2.09 times,
which means that the average market rate of firms in
Indonesia is 2 times greater than the book value. this
research specifically examines the manufacturing
industry, because the difference between the average
of book value and the value of firms in this industry
is quite large that is 2.4 times, even in the subsector
consumer goods industry average PBV reached 4.58
times. This condition encourages us to find out is
intellectual capital as the factor of that differences.
Several previous studies have shown different
results related to the influence of intellectual capital
on firm’s performance. Chen et al. (2005) shows that
intellectual capital has a significant positive effect on
the value and financial performance of the company.
These results are reinforced by research conducted by
Onyekwelu et al. (2017), Amin and Aslam (2017).
While different results shown by Firrer and Williams
(2003) and Diez et al. (2010) that intellectual capital
had no effect on firm’s performance. Similar results
were also shown by Mehralian et al. (2012) that there
is no relation between intellectual capital and firm’s
performance.
Prawira, B. and Setiawan, R.
Intellectual Capital and Firm Performance.
DOI: 10.5220/0007554609510956
In Proceedings of the 2nd International Conference Postgraduate School (ICPS 2018), pages 951-956
ISBN: 978-989-758-348-3
Copyright
c
 2018 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved
951

Meles et al. (2016), in their research mentions that
the capacity and contribution of intellectual capital to
the firm’s performance in every country and every
industry are different, therefore this research try to
investigate more related to the influence of
intellectual capital to firms performance on
manufacturing industry listed in Indonesia Stock
Exchange.
2 LITERATURE REVIEW
2.1 Previous Research
Nimtrakoon (2015), examines relationship between
intellectual capital, market value and financial
performance of firms in 5 countries in ASEAN.
Intellectual capital is measured by modifying value
added of the intellectual coefficient (MVAIC) and its
components measured by capital employed
efficiency, human capital efficiency, structural capital
efficiency, and relational capital efficiency. Market
value is in accordance with the market to book ratio,
financial performance as measured by net profit
margins and return on assets. Analysis model is
multiple linear regression. The results showed that
intellectual capital and its four components had a
significant positive effect on the value and financial
performance of the firm.
Nuryaman (2015), examined the influence of
intellectual capital on firm value with financial
performance as an intervening variable on 93
manufacturing firms listed on the Indonesia Stock
Exchange during period 2012. The results showed
that intellectual capital positively influenced value
and financial performance of the firm, while value
added capital employed, has no effect on return on
assets, return on equity, and net profit margin, but has
a positive effect on price to book value. Value added
human capital has no effect on firm's value and
performance, while structural capital value added has
a significant positive effect on price to book ratio and
return on equity, but has no effect on return on assets
and net profit margins. When return on assets were
included in the model, the regression coefficient of
value added capital employed, structural capital value
added, and value added intellectual coefficient
decreased from the previous model, so return on
assets were functioned as an intervening variable in
the causal relationship between intellectual capital
and firm value.
Different result was shown by research Firer and
Williams (2003), which is examining the effect of
intellectual capital on firm performance on 75 public
firms in South Africa in 2001. The results of this study
indicate that intellectual capital does not affect the
performance of the company. However, human
capital efficiency which is a component of
intellectual capital has a significant positive effect on
return on assets. Similar results was also shown by the
study of Diez et al. (2010).
2.2 Intellectual Capital and Firm
Performance
Intellectual capital is a collection of hidden assets
held by organizations such as brands, trademarks
and patents and other assets not seen in financial
statements, intellectual capital is the most important
resource for organizations to maintain competitive
advantage (Ross et al. 1997). Intellectual capital
according to Stewart (1997) is an intangible asset of
a company, it can be knowledge, information,
experience of human resources and company
organization. Mouritsen et al. (2001) revealed that
intellectual capital is the difference between the
market value and the book value of a company in
which this value is influenced by the intellectual
development of the company.
Pulic (1998) developed an intellectual capital
measurement model through the company's ability
to efficiently use physical capital (VACA), human
resource intellectual skills (VAHU), and structural
capital (STVA) describing the capabilities and
relationships of the company's infrastructure. Pulic
calls this coefficient an intellectual value-added
coefficient (VAICTM) that describes the company's
overall intellectual capabilities. Firm performance is
a benchmark against the company's ability to
manage and allocate their resources in a period.
Company goals will be achieved if the company has
a good performance. The company with good
performance reflects the company's condition in
good condition. The results of the firm's
performance can be used as an evaluation material
for the company in the future (Sudana, 2015).
2.3 Relationship between Intellectual
Capital and Firm Performance
Value Added Capital Employed (VACA) is related
to physical capital (net income and total equity)
owned by a company within a certain period (Pulic,
1998). This physical capital can be used as capital to
fund the activities of the company in the next period.
Firms with high physical capital have the
opportunity to expand their business. If the company
is able to utilize the physical capital possessed
ICPS 2018 - 2nd International Conference Postgraduate School
952

optimally, then the company will get the high return
and will eventually increase the value of the
company. Previous research conducted by Chen et
al. (2005) shows that VACA has a significant
positive effect on firm’s performance.
Edvinsson (1997) disclosed that Value Added
Human Capital (VAHU) is a combination of
individual employees' knowledge, skills, innovation
and ability to accomplish their tasks well, indicating
that employees with the high competency will give
the opportunities for the company to improve their
performance. Kamath (2015) reveals that VAHU has
a significant positive effect on firm’s performance.
Structural Capital Value Added (STVA) is a
corporate infrastructure that supports employee
productivity (Edvinsson, 1997). Firms with adequate
infrastructure will support employees to perform their
activities, so it may improve the performance and
value of the company. This is supported by previous
research conducted by Amin and Aslam (2017) which
revealed that STVA has a significant positive effect
on company performance.
If the company is able to utilize their resources
optimally (VACA, VAHU and STVA) it will create a
high intellectual capital (VAIC
TM
) for the company.
Firms with high intellectual capital have high
corporate performance as well. This is a positive
signal for investors, so the demand for stocks of firms
will increase. Chen et al. (2005), Onyekwelu et al.
(2017), Amin and Aslam (2017) show that
intellectual capital has a significant positive effect on
firm’s performance. Based on the explanation
hypothesis can be formulated as follows:
 H
1
: VAIC
TM
has a significant positive effect on
firm performace
 H
2
: VACA has a significant positive effect on
firm performance
 H
3
: VAHU has a significamt positive effect on
firm perfromance
 H
4
: STVA has a significant positive effect on
firm performance
3 METHODS
3.1 Sample
This study used a sample of 102 manufacturing firms
listed on Indonesia stock exchange and consistently
published financial statements in Rupiah during
period 2012-2016.
3.2 Measurement of Variables
3.2.1 Independent Variabele
Here is the measurement of intellectual capital using
the VAIC
TM
model developed by Pulic (1998):
a. Calculate Value Added (VA). VA = Output –
Input, which is output = total sales + other
revenues, and input = sales expenses + other
costs except personal expenses.
b. Calculate Value Added Capital Employed
(VACA). VACA = VA/CE, which is CE = net
income + total equity.
c. Calculate Value Added Human Capital
(VAHU). VAHU = VA/HC, which is HC =
personal expenses
d. Calculate Structural Capital Value Added
(STVA). STVA = SC/VA, which is SC = VA -
HC.
e. Calculate Value Added Intellectual Coefficient
(VAIC
TM
). VAIC
TM
= VACA + VAHU +
STVA
3.2.2 Dependent Variable
Profitability ratio is proxied with Return On Assets
(ROA) measured through net income divided by total
assets and Return On Equity (ROE) measured by net
income divided by total equity. While market value
ratio is proxied with market to book ratio (M/B) as
measured by market price per share divided by book
value per share (Sudana, 2015:25-27).
3.3 Analysis Model
In this research data is processed and analyzed by
using multiple linear regression model. Here is the
models in this study:
Y
it
= ߚ
0
,1
+ ߚ
1
,
1
ܸܣܫܥ
ܶܯ
݅ݐ
+ β
2
,
1
SIZE
it
+ β
3
.
1
LEV
it
+ ݁
݅ݐ
Y
it
= ߚ
0,1
+ ߚ
1,1
ܸܣܥܣ
݅ݐ
+ ߚ
2,1
ܸܣܪܷ
݅ݐ
+ ߚ
3,1
ܸܵܶܣ
݅ݐ
+ β
4,1
SIZE
it
+ β
5.1
LEV
it
+ ݁
݅ݐ
4 RESULTS
Descriptive statistics of variables in this research is
shown in Table 1.
Intellectual Capital and Firm Performance
953

Table 1: Descriptive statics.
Based on Table 1, during the period 2012 - 2016
manufacturing firms in Indonesia have difficulty in
making profit, this is shown by low mean scores of
ROA (0,042) and ROE (0,3506). MB has the mean
scores of 1.4155 indicating that average market value
about 1.4155 times greater than their book value.
Meanwhile, the mean scores of intellectual capital
(VAIC
TM
) is 2.8244 indicating a company created Rp.
2.8244 for every Rp. 1.00 utilized during period
2012-2016.
4.2 Relationship between VAIC
TM
and
Firm Performance
Based on Table 2, Value Added Intellectual
Coefficient (VAIC
TM
) has a significant
positive
effect on firm’s performance (ROA, ROE, MB)
which means firs hypothesis (H
1
) is
accepted. This is
proofed by the positive value of the regression
coefficient ROA, ROE and MB each of 0.013, 0.120
and 0.056 with a significance level of 0.000 < 0.05.
This shows that firms capable of managing capital
employed, human capital, and structural capital
optimally will improve the performance of the
company. firms with good performance will generate
high profits that increase the value of the company.
This is a positive signal for investors that are marked
by increasing demand of the company’s shares.
Table 2: Summary of regression results.
Variable ROA ROE M/B
VAIC
TM
.013*
(.000)
.120*
(.000)
.056*
(.000)
SIZE .007*
(.000)
.060**
(.014)
.113*
(.000)
LEV -.002
(.262)
-.047
(.081)
-.024
(.332)
Notes : significance at *1%, **5%
4.3 Relationship between VACA and
Firm Performance
Based on Table 3, Value Added Capital Employed
(VACA) has a significant positive
effect on firm’s
performance (ROA and ROE) which means second
hypothesis (H
2
) is
accepted. This is proofed by the
positive value of the regression coefficient ROA and
ROE each of 0.010 and 0.587 with a significance
level of 0.012 < 0.05 and 0.000 < 0.05. This shows
that firms with adequate physical capital will be able
to support the firm's performance to generate profit.
This result is in line with the research of Chen et al.
(2005) shows that VACA has a significant positive
effect on firm’s performance. While the
performance of the company proxied with market-
to-book ratio in this case is not influenced by VACA
(sig 0.417 > 0.05). This means that during the 2012-
2016 observation period the market assesses a
company not only from physical capital, but also
considers human capital as well as structural capital
owned by the company.
4.4 Relationship between VAHU and
Firm Performance
Based on Table 3, Value Added Human Capital
(VAHU) has a significant positive effect
on firm’s
performance (ROA, ROE, M/B), which means the
third hypothesis (H
3
) is accepted.
This is proofed by
the positive value of the regression coefficient ROA,
ROE, and M/B each of is 0.021, 0.042, and 0.090 with
a significance level of 0.000 < 0.05 and .039 < 0.05.
This shows that firms with competent human
resources will improve the firm's performance. In
addition, the market will also provide more value to
the company with superior human resources. This
results support Kamath's research (2015), that VAHU
has a significant positive effect on firm’s
performance.
Table 3: Summary of regression results.
Variable ROA ROE MB
VACA .010**
(.012)
.587*
(.000)
.090*
(.000)
N Min Max Mean
Std.
Dev
ROA 510 -.67 .49 .042 .0891
ROE 510 -7.68 9.42 .350 1.249
MB 510 .29 8.08 1.415 1.155
VACA 510 -14.4 7.42 .328 1.044
VAHU 510 -11.8 13.66 1.989 2.366
STVA 510 -8.70 11.25 .537
1.362
VAIC
TM
510 -13.5 14.87 2.824 3.025
SIZE 510 18.4 32.47 26.428 2.213
LEV 510 .09 .99 1.238 1.967
ICPS 2018 - 2nd International Conference Postgraduate School
954

VAHU .021*
(.000)
.042**
(.039)
-.039
(.417)
STVA .004
(.084)
.023
(.351)
.015
(.671)
SIZE .006*
(.000)
.038
(.080)
.112*
(.000)
LEV -.002
(.164)
-.05**
(.037)
-.026
(.298)
Notes : significance at *1%, **5%,
4.5 Relationship between STVA and
Firm Performance
Based on Table 3, Structural Capital Value Added
(STVA) has a significant positivr effect
on firm’s
performance (ROA), which means the fourth
hypothesis (H
4
) is accepted. This is
proofed by the
positive value of the regression coefficient ROA 0.004
with a significance level of 0.084 > 0.1. This result
shows that firms with adequate infrastructure will
support employees to perform their activities, so it
may improve the performance and value of the
company. This is supported by previous research
conducted by Amin and Aslam (2017) which revealed
that STVA has a significant positive effect on
company performance. However, the results of this
study also show that the market does not give more
value to the company with adequate structural capital,
but the market will provide more value for the
company. This is supported by previous research
conducted by Amin and Aslam (2017) which revealed
that STVA has a significant positive effect on
company performance. However, the results of this
study also show that the market does not give more
value to the company with adequate structural capital,
but the market will provide more value for the
company if the company is able to utilize their
infrastructure well.
5 CONCLUSIONS
Firms that are able to utilize their resources
optimally (VACA, VAHU and STVA) will create a
high intellectual capital (VAIC
TM
). Firms with high
intellectual capital also have high firm performance.
This is proofed in the results of this study which
shows that intellectual capital has a significant
positive effect on firm’s performance. In addition,
the results of this study found that the component of
intellectual capital that is VACA gives the highest
contribution on firm’s performance than VAHU and
STVA. This shows that firms with large of capital
employed and good managing on it, enabling firms
to improve financial performance and their market
value. This result is in line with Nimtrakoon (2015),
which shows that VACA was found to be the most
influential value drivers for firm performance.
The sample of this study is limited to the
manufacturing industries listed on the Indonesia
Stock Exchange. Meanwhile, there are still many
other industries in Indonesia that need to be
researched about the capacity of their intellectual
capital on firm performance. So that the results of
research with similar topics are expected to be used
as a reference for stakeholders in decision making.
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