The Contribution of Intellectual Capital to Value Creation

This paper studies the marginal contribution of intellectual capital (IC) components to company value using a hedonic pricing framework. The ANOVA is used to identify group differences among different national markets and industries. Two models have been developed to reflect the time effect: one related to the immediate creation of value and another for the long term. As could be expected, the contribution of IC to companies’ value creation differs significantly between countries and industries. Both models, short- and long-term, are significant and with a normal explanatory power. We have found both positive and negative coefficients. Human capital plays a critical positive role in value creation in the short term. Structural and relational capital becomes more relevant in the long term. However, in the long term, the results obtained regarding the effect of human capital are unclear.


Introduction
One of the most important issues for the strategic management of companies is the identification of value drivers. Several methods in the value-based management approach have been designed for this purpose.
Most of these tools provide a factor analysis based on the assumption that only significant and manageable components should be considered as value drivers for a particular company. Taking for granted that a company is a portfolio of a number of interrelated resources, we expect that each of a company's capital components contributes to create value for investors.
We could also suppose that this contribution should be positive if we employ a particular resource efficiently and negative otherwise. Moving to the analysis of value creation, we are usually confronted by the concept of economic profit. Many researchers argue that intellectual capital is becoming practically the only competitive advantage for companies in the new economy (Bontis, 2003;Grant, 1991;Hysom, 2001;Wade & Hulland, 2004); meanwhile, the concepts of economic profit and residual income are based on the fact that only the competitive advantages of a particular firm provide additional value creation. Therefore, the close connection between the modern concepts of valuebased management and intellectual capital becomes clear. We will thus assume that the key feature of intellectual capital is its ability to enhance the effectiveness of other resources, including tangible assets.
The idea behind this study is to investigate the contributions of different intellectual resources to company The Contribution of Intellectual Capital to Value Creation value. We use a hedonic pricing model to solve this problem. Because the hedonic pricing method is based on the fact that the prices of goods in a market are affected by their characteristics, we can draw an analogy that explains the enterprise value by the total value of all of the resources involved in company's activities. Moreover, because we consider only intellectual resources, we need to identify that part of the enterprise's value that is created by intangibles. The value-added indicators reflect the part of the value that is associated with the employment of intellectual capital. Thus, we suggest in this study that companies' added value is the quantity of all of their intellectual resources multiplied by their hedonic prices.
The database collected for this purpose consists of the financial and economic indicators underlying the evaluation of intellectual capital, such as strategic performance indicators -Economic Value Added (EVA © ) and Future Growth Value (FGV © ). We use panel data tools, such as "fixed effects", expressed in the steady quality of corporate governance. For this purpose, we will analyze a database of more than 400 European companies (2005)(2006)(2007)(2008)(2009)) from different industries: financial services, wholesale and retail trade, machinery and equipment manufacture, the chemical industry and, finally, transport and communications. Due to the nature of the database, which includes different countries and industries, it is appropriate to check if those differences affect the contribution of intellectual capital. Therefore, we will introduce this analysis in our study.
There are some methodological issues that we need to address. Firstly, we need to identify and measure the value of intellectual capital's inputs and outcomes.
Then, we must specify the model by accounting for all the relevant factors that increase the value of the company. Finally, we need to address possible endogeneity -when stated in this manner, the problem of independent variables and determinants are mixed and there is some simultaneity as well as unobservable omitted variables.
As a result of this research, we expect to find a hedonic price for each component of intellectual capital, which will reveal the marginal contribution of the different intangibles. A cross-countries analysis provides a comparative study of intellectual capital's contribution to the future growth of value. Addition-ally, we will draw conclusions as to the robustness of the developed models.
This study provides information about the contribution of different intellectual resources to companies' present and future growth in value. It could also lend support to investment decision making.
The paper is organized as follows. The next section offers a brief overview of the literature, focusing primarily on the empirical analysis of intellectual capital's contribution to company value. In Section 3, we introduce the research design and describe the hedonic pricing framework applied by our study. Section 4 empirically tests the hypotheses proposed in our research. Section 5 presents the conclusions of the paper by briefly summarizing the main findings obtained.
Finally, we note the limitations and implications of our study in the last section

Theoretical background
We apply a hedonic pricing approach to the analysis of intellectual capital's contribution to company value. This issue is obviously relevant from the investment point of view. Meanwhile, empirical studies tend to investigate the relationship between intellectual resources and company performance by considering only the significance and the sign of this relationship while ignoring the value of the contribution that those investments provide (see Bollen, Vergauwen & Schnieders, 2005;Bontis, 2003;Cricelli, Grimaldi & Hanandi, 2011;Le, Kroll & Walters, 2012;Riahi-Belcaoui, 2003;Tan, Plowman & Hanckock, 2007;Tovstiga & Tulugurova, 2007;Tseng and Goo, 2005;Youndt, Subramaniam & Snell, 2004). However, Giuliani (2013) analyses Intellectual Capital (IC) in terms of not only value creation but also the destruction of value due to intellectual liabilities.
Thus, conducting a critical analysis of the relevant empirical studies, which accomplish the aim of establishing the relationship between a company's intangibles and its value, we discover that the main restriction of the extant research is related to the interpretation of the estimates represented there. In the prospective investment analysis, the amount of the intangibles' contribution to company performance is of particular importance as the direction of spending and the application of management efforts must be supported and justified by a precise evaluation. In this regard, we find The Contribution of Intellectual Capital to Value Creation it promising to suggest a technique that extends the application of a statistical tool for the intellectual capital analysis of companies.
As we argue, it is possible to identify the marginal contribution of intellectual resources needed to obtain an unbiased estimation of the intellectual capital components. The approach that is commonly applied to this issue is that of hedonic pricing. This tool was initially implemented for the analysis of housing and labor markets, as in Gillard (1981), Li and Brown (1980), Sirpal (1994), Walden (1990). Reis and Santos-Silva (2006) used it in car valuation studies. It is now expanding into many other research fields, including empirical corporate finance. In trying to discover the hedonic prices of intellectual resources, we need to apply the "input-outcomes" approach that we find such studies as those of Chen, Cheng and Hwang (2005) A resource-based approach provides an entire range of tools for the measurement of intellectual capital inputs (Kristandl and Bontis, 2007; Pike, Roos and Marr, 2005). The relevant models that introduce the proxies for intellectual capital inputs are the Sveiby Monitor, the Balanced Score Card, the Skandia Navigator and the Ramboll Model.
Because we want to reveal the contribution of intellectual capital to company value, we need to use the value-based indicators of intellectual capital outcomes.
As we have already noted that both tangible and intellectual resources of the companies are strongly interrelated, we must choose performance indicators for those companies that primarily reflect intangible outcomes.
Turning to the main stages of a value-based management analysis, we will find many links to the concept of intellectual capital. According to the value-based management (VBM) view, the primary goal is longterm growth in the value of the capital employed. The VBM approach considers a company from an investment point of view and provides an entire set of tools for evaluating the effectiveness of intangibles. Most of these tools are related to the concept of economic profit. Economic profit expresses residual income -"profit above a normal rate of return". In other words, if we consider intellectual capital outcomes, we need to analyze not only the returns of a particular firm but also the opportunity costs expressed in the normal rate of return in the economy or the industry.
Numerous researchers examining the theory of stakeholders agree that the best indicator of the benefits for a company's stakeholders is economic profit (Donaldson and Preston, 1995;Meek and Sidney, 1988;Riahi-Belkaoui, 2003) as expressed in different performance indicators: SVA © -shareholder added value (Rappaport, 1986), EVA © and MVA © -economic and market added value (Stewart, 1991).
Stakeholder theory researchers agree that economic profit, as well as possible, describes the efficiency of intellectual capital employment (Donaldson and Preston, 1995;Riahi-Belkaoui, 2003;Williams, 2012): the company succeeds when returns on invested capital exceed the industry average level. In a situation where most technology and financial resources are generally available to all companies around the world, companies need to look for another source of growth to achieve better results on the market. That source could be provided by intellectual capital employment and its effective management. This reasoning underlies the assumption that a positive economic profit reveals an intellectual capital characteristic.
Thus, economic profit indicators are applicable for the identification and analysis of a specific contribution of intellectual resources.
The consideration of added value as one of the key indicators of intellectual capital outcomes has increasingly become the object of academic study in recent years. Intellectual capital, which allows companies to create added value, is considered to be a source for long-term growth in new economies (Chen and Huang, 2009;Riahi-Belcaoui, 2003;Youndt et al., 2004). Several empirical studies have been devoted to the analysis of intellectual capital and added value.  Lev (1999), Riahi-Belkaoui (2003), Stern (2001) consider EVA © to be one of the key proxy indicators for intellectual capital. They argue that economic profit is the welfare gain of a company through the effective use of resources. This reasoning underlies the assumption that a positive economic profit reveals intellectual capital. In that sense, recent VBM models such as EVA © and Cash Value Added (CVA © ) could be considered to be proxy indicators of intellectual capital. Even when Mouritsen (1998) addresses EVA © and IC, it could be said that the economic value added in a firm is a consequence of its IC. In that sense, EVA © can be used as a proxy for Intellectual Capital despite the fact that, from a managerial point of view, they differ (Mouritsen, 1998). Moreover, an IC statement is "not a set of calculations that arrives at a digit for the worth of a firm's IC" (Mouritsen, 1998, p. 470). However, EVA © provides a figure that can be used as proxy to conduct a quantitative analysis.
Another proxy indicator that is closely connected with economic profit is the value of future growth (FGV © ). FGV © assesses the share of the market value attributed to EVA © growth. In accordance with Stern Stewart & Co., FGV © "can be driven by market expectations of productivity improvements, organic growth and value-creating acquisitions. " Meanwhile, FGV © is the tool applied "in benchmarking against the "growth plan" of competitors and evaluating investors' assessment of the wealth creation potential of new strategies and opportunities" (http://www.sternstewart.com). Burgman and Roos (2004) show that a share of the future growth value of several companies grows every year and in some industries is characterized by the implementation of innovative products (this approach suggests that innovative behavior and an investment policy focused on the accumulation of intellectual capital provide a greater potential for future growth.
Let us draw an analogy between the identification of value drivers and those hedonic prices that have traditionally been applied to the analysis of tangible objects.
In applying this tool to our research question, we seek to identify those characteristics of intellectual resources that have a significant influence on the proxy indicators of intellectual capital outcomes: EVA © and FGV © .
Meanwhile, as stated above, the EVA © indicator reflects a short-term response in terms of value creation. FGV © gives us a perspective picture of value growth taking into account investors' expectations.
The next section provides a short description of the research design based on the relevant theoretical and empirical studies.

Research Design
Because this paper explores the contribution of intellectual resources using a hedonic pricing approach, we specify the model as follows. In applying the hedonic pricing approach, we need to focus on value-based approach goal setting. Therefore, the research design of this study is closely connected to the relevant valuebased view models: economic value added (EVA © ) and future growth value (FGV © ). This tool allows the discovery of the coefficients that reflect the marginal value of a particular component of intellectual capital.
We conduct the analysis in two steps: • We look for the existence of significant differences between countries and industries using ANOVA.
This analysis allows the confirmation or rejection of the hypothesis that factors of countries and industries affect the contribution of intellectual resources to company value.
• We conduct a panel data analysis designing a fixed effect regression. Applying this tool, we can avoid the endogeneity problem and gain consistent unbiased estimations. Meanwhile, this analysis has a number of shortcomings. It is impossible to estimate hedonic prices for those factors that do not slightly change over time. However, we obtain prices for some significant factors, and those estimates could be considered to be average unbiased hedonic prices reflecting the contribution of intellectual resources to company value.
Because we have an opportunity to compare companies from different countries and industries in our research, we should look to see if there are any significant differences between those markets. We propose the hypothesis that the external factors associated with the country or with one particular industry in which companies operate have an impact on their value drivers. The ANOVA provides a statistical test for whether the means of several groups are all equal. We use this tool in our research before estimating the hedonic prices of intellectual capital components.
In applying the hedonic pricing approach, we need to focus on the value-based approach of goal setting.

The Contribution of Intellectual Capital to Value Creation
This focus means that the research design of this study is closely connected with such relevant VBM models as economic value added (EVA © ) and future growth value (FGV © ). Intellectual capital is a heterogeneous resource. As such, we follow the approach suggested by Bontis and Fitz-enz (2002, p. 243), who maintain that "the intellectual capital literature states that there exist three primary components of intellectual capital: human capital (HC), structural capital (SC) and relational capital (RC)". Therefore, our core econometric specification is If we need to estimate the equation on the basis of a panel data analysis, we should identify the nature of the fixed effect. We assume that the quality of corporate governance in a particular company is steady across time; this factor could not be observed and measured, but in applying the fixed effect tool, we solve the endogeneity problem. Accordingly, the specification for our model is  introduced in table 1) To estimate this equation, we have used an entire range of proxy indicators, as presented in Table 1.
Most of the indicators mentioned were found in some of the theoretical and empirical studies that cover the issues being studied here, such as Barney (1991), Bontis (2003), Grant (1991), Rumelt (1991), Wade and Hulland (2004). Moreover, some of these proxies are presented in the practical application of  From the companies' Annual Reports, section "Common information". It has the value 1 if there is foreign capital and 0 otherwise.
Location within a city with over 1 million citizens (dummy) From the companies' Annual Reports, section "Common information". It has the value 1 if the headquarters is in a city with over 1 million inhabitants and 0 otherwise.

Presence of subsidiaries
From the companies' Annual Reports, section "Subsidiary name". If a company has fewer than 100 subsidiaries, use the total number, otherwise use the following vector "First 100 out of Y subsidiaries".
Well-known brand (dummy) Search for a company's name from the website: http://www.justmeans.com/top-global-1000-companies If it has a rank, the value is 1, otherwise 0.

Citations in search engines (categorical 0-7)
Search for a company's name and its score from the website: http://www.prchecker.info/ check_page_rank.php. Classified according to the score.

Empirical Results
It should be emphasized that our data covers the period of the global financial and economic crisis of [2008][2009]. As such, we obviously face the problem of companies' falling performance as well as a stagnating financial market. We need to consider this phenomenon when we draw our conclusions. We do not have a strong partial correlation between the explanatory variables; therefore, we will not face a multicollinearity problem. Meanwhile, we observe a correlation between some independent and dependent variables according to the econometric specification of this research (see table 3 in Appendix).
The results of the analysis of the variance are presented in table 4. Mathematically speaking, because the P-value is less than 5%, we cannot reject the null hypothesis that there are country differences in the sample of companies that we have analyzed. In other words, institutional and market factors significantly affect the contribution of intellectual capital to company value. We need to take this fact into account when estimating the hedonic prices of intellectual resources.
In analyzing the sample of companies from different countries, we obtain an average estimation for the hedonic prices among different markets as well as the direction of price change according to a country's specific conditions. Those prices should be interpreted with a certain degree of caution. To investigate a particular national market, we should adjust the prices that we obtain in this study.
Moreover, we seek to analyze industry differences by supposing that those factors play a critical role in the transformation process of intellectual capital. This role, undoubtedly, has an impact on the marginal contribution of the components of intellectual capital. We have analyzed companies from industries with a predominance of varied intellectual capital components and, therefore, different configurations for intellectual capital. As such, we have selected the following industries:

Variable Variable description
Integrate indicator of the site quality (categorical 1-4)1 Search on a company's website and estimate the site quality according to the following criteria: • The availability of information for investors (special section or page) • Multi-lingual information (with English language) • Amount of information (more than 10 pages) • Design (using flash animation) For every criterion, the company gains 1 point. The Integral Index is the sum of points.

Intellectual capital components: structural capital
Intangible assets (th. Euros) From the companies' Annual Report, section "Financial data". The amount reported in the balance sheet.

Patents, licenses, trademarks
Search for a company's name and the number of patents on the website QPAT: http:// www.orbit.com. The number that appears there.

ERP, quality management systems implementation (dummy)
Search for a company's location on their website using such words as "ERP", "Oracle", "NAVISION", "NA", "SQL", "SAP" If the company has information about these programs, assign 1, otherwise 0.
Owners/directors ratio Company's Annual Report sections "Shareholder name" and "Directors information" Note: 1 -Each categorical variable was transformed into a dummy variable for the linear regression analysis.  According to the established approach to the theory of competitiveness and the concept of intellectual capital, the higher the degree of the efficiency for the intellectual capital, the more competitive and successful a company will be, as measured by EVA © , FGV © and other measures. It is relevant to remark that hedonic prices can be negative or positive, reflecting the efficiency of the employment of intellectual capital.
We need to address the obvious issue of endogeneity.
As stated, independent variables and determinants are mixed and there is some simultaneity and some unob-  Issue 4 25-40 2013 ables, we should be able to reduce the impact of these shocks on the estimated coefficients (hedonic prices).
Fixed effect regression provides one way to solve this problem. We use panel data tools, such as "fixed effects", as expressed in the steady quality of corporate governance. Taking that steady quality for granted, we can assert that these estimates are consistent and unbiased.
There is no statistically significant spatial correlation existing between the independent variables.
Finally, we developed two models in accordance with the concept of the transformation of intellectual resources into company value. We have used the indicator of the immediate creation of value -EVA © -and long-term company growth is expressed in the FGV © indicator. Applying that approach, we had an opportunity to compare the hedonic prices for the characteristics of companies' intellectual capital at different time horizons.
Both models are significant and have normal explanatory power. We have discovered a number of significant coefficients that are obviously interpreted in terms of key value drivers.
The negative coefficient before the variable "company age" is explained on the basis of the life-cycle theory: the more mature the company is, the lower the growth rate of its value. In this sense, the price of companies' market experience is negative.
Two important characteristics of human capital are associated with positive and almost equal hedonic prices: the high and medium efficiency of a company's personnel.
It should be noted that the hedonic price of intangible assets is negative in the short run. This negative value could be associated with the long payback period for investments in this type of asset. In terms of the value added, we conclude that increasing the cost of capital by intangible assets will not provide a sufficient return on investments to cover opportunity costs.
Turning to the long-term return on intellectual capital investments as expressed in future growth value, we have evidence for the following findings: A well-known brand is connected with a statistically significant hedonic price and could, on average, contribute to a value of more than 3.7 million Euros.
The employment of foreign capital is very important in the continuing creation of value. This result could be easily explained by the growing importance of competition for resources on the global financial markets.
This fact enhances companies' motivation to increase the efficiency of their activities.
The number of subsidiaries contributes negatively and is not covered, even over the long-term. We suppose that this type of relational strategy is not relevant given the conditions of the new economy.
Many citations in search engines mean that a company is widely represented on the Internet. Moreover, the company is popular and can provide benefits when developing a network with clients, suppliers and partners. The hedonic price of this intellectual resourceof relational capital -is very high.
Location in a megacity is an important value driver for future growth as well as for immediate returns as expressed in added value. A location in a city with more than 1 million citizens is positively linked with company performance because it provides access to deep markets and effective demand.
Investments in intangible assets could be covered in the long run. The positive hedonic price of this characteristic is evidence for this fact.
Meanwhile, we have discovered some significant relationships that are not so obvious at first sight. Firstly, the high efficiency of an employee is negatively associated with value creation. We suppose that, others things being equal, human capital is no longer a core competitive advantage for a company over the long-term. Paying attention to the other drivers, we believe that marketing is a factor that is becoming more important for both developed and emerging European markets.
This finding also applies to company networks (subsidiaries). The development of information and telecommunication technologies has led to the decreasing attractiveness of projects that are connected with the expansion and penetration of different regions and markets. These projects could be replaced by more efficient ways of conquering markets.

Conclusions
In this study, we have justified the idea that hedonic pricing can be applied to identify the contribution of intellectual capital to a company's value. Moreover, this approach allows the extension of the investment decision-making base because it provides a comparative analysis of different intellectual capital components.
As has been addressed in this paper, the primary requirement for the discovery of hedonic prices is the The Contribution of Intellectual Capital to Value Creation ability of the econometric tool to provide consistent and unbiased estimates. We have suggested an analysis of panel data, specifying a model with a fixed effect.
As stated in this paper, if we consider a short panel, we suppose that the individual characteristic of a particular company is steady corporate governance.
In applying this tool, we gained a number of significant results. However, they should be interpreted with a certain dose of caution. The primary problem that we faced in the research is the fact that our data covered a crisis period. Meanwhile, both of the hypotheses that we proposed in the study were confirmed.
The first hypothesis is related to the assumption that hedonic prices differ according to the institutional and economic conditions of the markets in which a company operates. That hypothesis has been confirmed because we found a significant difference between the groups of countries and industries that we analyzed.
The second hypothesis is based on the premise that hedonic prices could be positive or negative. This ability explains the contribution of intellectual capital to companies' value. We have found both types of prices in our study, and we have tried to interpret those results.

Limitations and implications
The key restriction of the study arises from the essence of the statistical analysis. The framework could only be applied for the analysis of a firm as a typical representative of the sample. In that sense, the framework is not applicable for the specific analysis of a company.
Interpreting the findings of the study, we can identify the following: Whether a particular intangible resource makes a statistically significant contribution to the companies' value.
If the contribution is positive or negative. In terms of the value creation process, the contribution is interpreted as the ability of a particular resource (IC component) to provide enough return to cover all of the investments associated with it.
Comparison of the IC components' contribution to value creation -identification of more and less efficient investments in intangibles Identification of industry and country effects (unbiased estimation of the effect values) There are two specific limitations to this research.
First, the results are very sensitive to the proxies selected for the analysis. Nevertheless, this is a common problem in this type of study. Second, the sample is not representative. Therefore, the conclusions can be properly referred only to the companies included in the database.
In our study, we advocated for the idea of implementing the technique of hedonic prices to a value creation process. This particular application of this common approach might be valuable for further research attempts as it provides both a possible interpretation of established results and an econometric tool (panel data-fixed effect) that provides consistent hedonic price estimates.
From the practical point of view, the outcome of our study is associated with company strategic management in the frame of a value-based approach. We state that the suggested tool might be considered for use as investment decision support for policy mak-

Endnotes
1 EVA© and FGV© are estimated as in Molodchik et al. (2012), using the data available in the companies' financial reports.