Intellectual Capital’s Leverage on Shareholder Value Growth: A Lesson for Developing Economies

Bongani Ngwenya^1,

¹Solusi University, Zimbabwe

Cite this paper:
Bongani Ngwenya. Intellectual Capital’s Leverage on Shareholder Value Growth: A Lesson for Developing Economies. American Journal of Educational Research. 2013; 1(5):149-155. doi: 10.12691/education-1-5-1

Abstract

The purpose of this study is to evaluate whether there is a correlation between the intellectual capital of employees, i.e. top managers (the agent) and the shareholder (the principal) value growth among Zimbabwean companies, listed on the Zimbabwe Stock Exchange. By using these results the aim is to further examine a possible indicator for leveraging the efficiency of intellectual capital in a developing economy as a lesson. In order to perform this investigation, intellectual capital and shareholder value are quantified with, respectively, value added per employee and share price value per employee. These measurements are gathered from 17 Zimbabwean listed companies, divided into five industry sectors, that is, services, manufacturing, agriculture, mining and information technology, and tested statistically in order to find a relationship. This means, according to the researcher`s propositions on the return on intellectual capital, that there also is a correlation between intellectual capital and shareholder value growth. In order to provide an indicator for improving companies’ intellectual capital, a statistical examination concerning the relationship between the Intellectual Capital Multiplier (IC Multiplier) and value added is also performed. This examination shows that there is a strong correlation between the IC Multiplier and value added, value added can to a degree of 84 percent be predicted by the IC Multiplier, and that working with the ratio between structural and human capital is an excellent method for companies in developing economies to increase their intellectual capital. In conclusion it can be said that most companies in this investigation show moderately low values regarding the IC Multiplier, leading to an erosion of the companies’ human capital. In order to become more stable and lower the degree of risk, these companies must improve their IC Multiplier. What this study demonstrates is that an improvement of the IC Multiplier also will have an extensive effect on the company’s shareholder value growth.

Keywords:
intellectual capital value added per employee structural capital human capital IC multiplier shareholder value growth

This work is licensed under a Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/

Figures

References:

[1]	Johnson, M, “Intellectual Capital`s Leverage on Market Value”, Book House.
[2]	Lev, B 2000, “Knowledge and shareholder value”, http://www.stern.nyu.edu/~blev/knowledge&shareholdervalue.doc, download May 15 2002, 2002.
[3]	Gu, F, and Lev, B, “Intangible Assets–Measurement, drivers, usefulness”, http://www.stern.nyu.edu/~blev/intangible-assets.doc, download April 10 2002, 2001.
[4]	Edvinsson, L, and Malone, M. S, “Intellectual Capital: realizing your company’s true value by finding its hidden brainpower”, Harper Business, 1997.
[5]	Pulic, A, “VAIC–An Accounting Tool for IC Management”, http://www.measuring-ip.at/Papers/ham99txt.htm, download April 15th 2002, 2000.
[6]	Rylander, A, Jackobsen, K., and Roos, G, “Towards improved information disclosure on intellectual capital”, International Journal of Technology Management, Volume 20(5/6/7/8), 715-741, 2000.
[7]	Bontis, N, “There`s a price on your head: managing intellectual capital strategically”, Business Quarterly, Summer, 40-47, 1996.
[8]	Bontis, N, “Intellectual capital: an exploratory study that develops measures and models” Management Decision, Volume 36(2), 63-76, 1998.
[9]	Bontis, N, "Managing Organizational Knowledge by Diagnosing Intellectual Capital: Framing and advancing the state of the field", International Journal of Technology Management, Volume 18(5/6/7/8), 433-462, 1999.
[10]	Collis, D.J, and Montgomery, C.A, “Competing on resources: strategy in the 1990s”, Harvard Business Review, 118-128, 1995.
[11]	Guthrie, J, “The management, measurement and the reporting of intellectual capital, Journal of Intellectual Capital, Volume 2(1), 27-41, 2001.
[12]	Edvinsson, L, “Developing IC at Skandia”, Long Range Planning, Volume 30(3), 320-321-366-373. 1997.
[13]	Dzinkowski, R, “The measurement and management of intellectual capital: an introduction”, Management Accounting: Magazine for Chartered Management Accountants, Volume 78(2), 32-36, 2000.
[14]	Pike, S, Rylander, A., and Roos, G, “Intellectual capital management disclosure”, In Choo, C.W., and Bontis, N (Ed), The Strategic Management of Intellectual Capital and Organizational Knowledge: A Selection of Readings, Oxford University Press, New York, NY, 2001.
[15]	Sveiby, K, “The new organizational wealth: managing & measuring knowledge-based assets”, Berrett-Koehler, 1997.
[16]	Sveiby, K., Arbetsgruppen, K, “Den osynliga balansräkningen”, Affärsvärlden förlag AB, www.intellectualcapital.org 2000, Curry, A., and Cavendish, S (editors), download April 14th 2002 http://www.intellectualcapital.org/evolution/index.html, 1990.
[17]	Barney, J.B, “Firm resources and sustained competitive advantage”, Journal of Management, Volume 17, 99-120, 1991.
[18]	Edvinsson, L, “Corporate Longitude: navigating the knowledge economy”, Book house, 2002.