Intellectual Capital Efficiency & Financial Brand Value Linkage: The Role of Relational Capital.
| Author | Niyas, N. |
Introduction
A general lack of concepts, framework, and valuation methods that can explain how the value of intellectual resources can be measured and utilized and its direct impact on enterprise value is evident in the previous literature (Gupta & Bhasin, 2014). Accenture (2003) was surveyed to examine the importance of intangible assets in determining the firm's success. One hundred twenty top executives were consulted from around the world, and 96% of them agreed that intangible assets are central for profitability and success, but only 5% said that they implemented effective measurement tools to assess the same. The study was able to conclude that this negligence can lead to grave consequences for these companies. The probable reasons for companies not disclosing their intangibles and brand value were studied by Deutsche Bank Research which is: limitations imposed by accounting regulations, reluctance to disclose technical intricacies and other intellectual capital to competitors, the unavailability and lack of knowledge about apt models, and vocabulary to conduct such research. A survey conducted by Forbes magazine, which studied 3500 top US Companies, was able to conclude that intangibles can contribute up to 72 percent of market value (Yeung & Ramasamy, 2008). Thus, we can conclude that finance executives and accounting managers should acknowledge and act upon the necessity of evaluating and reporting brand value and intangibles in the financial statement of companies. And also that academic researchers, accounting practitioners, strategic managers, and fiscal authorities have already started studying and assessing intellectual capital and the importance of brand valuation (Janoskova & Krizanova, 2017).
Intellectual Capital (IC) refers to the economic value of an organization's intangible assets, such as relational capital, organizational capital and human capital (Liu & Jiang, 2020). Measurement of IC is essential for its management and reporting. Brand equity can be defined as the benefits, profits, and values associated with a brand, as perceived by its customers, which is the result of the overall performance of the corporate brand (Gupta & Bhasin, 2014). The terms 'brand value' and 'brand equity' are occasionally used interchangeable). However, the value of brand equity comes from the set of attributes related to the perception and opinion of customers and not the economic or financial value of the brand (Aaker, 1991; Aaker & Keller, 1990). Brand equity is thus a perceived value and suffers subjectivity issues. Therefore, our research attempts to evaluate the financial brand value of Indian companies expressed in absolute monetary value using an appropriate methodology indicated by the literature.
A strong brand ensures recurring demand. This shows the role of brands in the value creation process of companies. Brand value is of great interest to researchers because of the apparent connection between intellectual performance and the brand strength of a company (Sadalia & Marlina, 2018). It is commonly acknowledged that the value of a brand is a reflection of the company's ability to convert intellectual capital into economic value and hence, profit. This is evident from factors like the benefits reaped from price premium and strategic navigation through ranks and positions through innovative leadership, brand recognition, customer loyalty, etc. Hence this calls for a need to test the nexus between IC and firm performance measured in terms of financial brand value.
Nexus between Intellectual Capital Efficiency and Brand Value is hardly studied around the globe. One of the main reasons is that there is a belief that Brand Value is a part of IC. But in reality, Brand Value may be or may not be a part of IC. As pointed out by Salinas (2009), when the meaning of IC is curtailed and confined to knowledge, it may not include the brand. When IC is treated as the product of knowledge, it may include the brand. When IC is treated as the aggregate of unrecognized intangibles in the financial statement, it may include internally generated goodwill, but no acquired brand is included (Salinas, 2009). Since IC in the Indian context is mostly treated as the aggregate of unrecognized intangibles in the financial statement, our study assumes IC does not include brand, and we attempt to analyze the nexus between ICE and financial brand value of Indian companies. The study also attempts to test the effect of the components of ICE on Financial Brand Value. Each component of ICE influences differently to the brand (Salinas, 2009). Therefore, how Structural, Relational and Human capital efficiencies influence the Brand Value is also needed to be tested. Since brand valuation is believed to be an interesting act of firm valuation, studying the effect of IC on brand is important. Whether an increase in ICE reflects an increase in Brand Value is a question of concern because it has already proved its role on profitability and stock price. Higher the financial brand value, higher the profitability (Eng & Keh, 2007; Simon & Sullivan, 1993; Yeung & Ramasamy, 2008). Higher the financial brand value, higher the stock price (Yeung & Ramasamy, 2008; Hsu et al., 2013; Kirk et al., 2013; Razwiedani et al., 2014; Topuz & Aksit, 2016).
The primary objective of this research is to gauge the Intellectual Capital and Financial Brand Value of 208 selected Indian companies. For Measuring ICE, VAIC[TM] model developed by Ante Pulic (2000) has been used. An extended variant of VAIC[TM] model is also used by including Relational Capital as an additional component of ICE and to test whether the inclusion of RC has to do anything to the influence of IC on Brand Value. The Hirose brand valuation model has been used to gauge the financial brand value of selected Indian companies. Consequently, an investigation of the effect of ICE and components of ICE (Measured in both models) on Brand Value has been made. This study is an advancement over previous works related to the IC research environment. Although the linkage of ICE with Brand Value is discussed earlier, the number of studies is very limited, and those studies are conducted with small sample size. Besides, in most of the researches the researchers used Brand Values published by brand valuation agencies like Interbrand, Brand Finance Inc. Forbes. etc. the problem with those studies is that the consultancy agencies publish the Brand Values of major companies only. Taking the Brand Value performance of only blue-chip companies may bias the results. By taking a large sample size, our study considers companies with higher as well as lower Brand Values representing every industry listed in BSE 500 index in India. So, we claim that the results of this study will be a benchmark for future studies related to ICE brand value linkage. This study will be useful for academicians and researchers to develop newer models of IC and to conduct further researches related to the IC Brand Value linkage. The managers and external stakeholders can use the proposed models to estimate the IC of their firms and Brand Value as well. The calculation of both IC and Brand Value is easier in the proposed models as it can be done using the variables and data published in the financial statements of the companies.
Literature Review & Hypotheses Development
Intellectual Capital comprises all assets and processes that normally do not appear on balance sheets and all intangible assets like trademarks, patents, and brands that modern accounting methods take into consideration. Better intellectual performance indicates an improvement in knowledge and intelligence owned by the company, which leads to increased stability in business. This is obtained through manufacturing innovative and quality products (Sadalia & Marlina, 2018). It can be defined as the sum total of the knowledge of its members, a practical translation of knowledge. A corporate brand, however, is a valuable resource that confers sustainable and competitive advantage upon an entity. Intellectual Capital has a tremendous and lasting impact on brand equity (Gupta & Bhasin, 2014). Sadalia (2018) studied the influence of brand value on intellectual capital and the influence of intellectual capital on firm performance. It also analyzed the influence of brand value on financial performance with control variables. The samples considered include 76 companies whose data for the period 2014-2016 has been observed. The result showed that Human Capital (VAHU) and Structural Capital (STVA) do not fit the criteria; hence only Capital Employed (VACA), which fits the criteria being an indicator of the value of intellectual performance, has been considered. The result indicates that intellectual capital performance has a positive effect on brand value at...
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