The Effect Of Intellectual Capital Growth on The Value of The
Company
Mahesty Wida Rahmayanti, Widi Hidayat
Department of Accounting, Faculty of Economics and Business, Universitas Airlangga, Surabaya-Indonesia
Keywords: Financial Performance, Firm Value, Intellectual Capital, Rate Of Growth Intellectual Capital.
Abstract: This research aimed to investigate the effect of intellectual capital growth toward firm value with financial
performance as the intervening variable on banking companies in Indonesia that were listed on the
Indonesian Stock Exchange (IDX) from 2011 to 2015. This research using a quantitative explanatory
approach. The sample used in this research comprised 68 banking companies with the selection done by a
purposive sampling method. The analysis method that was used in this research is partial least squares
regression, performed by WarpPLS 5.0 for Windows software. The result of this research showed that: (1)
intellectual capital growth has a positive significant effect toward financial performance; (2) financial
performance has a positive significant effect toward firm value; (3) intellectual capital growth has a
negative effect toward firm value; (4) intellectual capital growth does not have a direct effect toward firm
value, but rather influences firm value indirectly with financial performance as the intervening variable.
1 INTRODUCTION
The rapid development of science and technology
brings a positive impact to the development of the
economy in Indonesia. One of the impacts of the
phenomenon has been the emergence of ASEAN
Economic Community (AEC), which provides
business opportunities for companies from various
industrial sectors in the ASEAN group to exist and
develop, causing increasingly tight competition for
the companies in Indonesia. This increasingly tight
competition requires business actors to survive and
compete by improving innovations on management
and business strategy to achieve their goals.
Modern economic growth forces the companies
to change their business management from resource-
based business management to knowledge-based
business management. The knowledge-based
business emphasizes on the management of
knowledge resources owned by the company. This is
in line with the opinion of Pulic (1998), whereby
economic growth is no longer determined by the
number of employees, but by productivity
improvement on an ongoing basis. One of the goals
of establishing a company is to maximize the
company’s value.
Firm value is a certain condition as an image of
the achievement of the company in the form of
public trust in the company. The company’s value is
a very important measure because it reflects the
level of shareholder prosperity. Companies must
make innovative and sustainable efforts in order to
achieve their goals and to survive amid the
competition; one of these efforts is using the
competitive advantage possessed. Competitive
advantage can be created through the optimal
management of enterprise resources.
The knowledge resources include intangible
assets owned by the company, such as intellectual
and technology capital owned by the company.
Intellectual capital is a company asset consisting of
experience, expertise, and abilities utilized by the
company (Haldami & Rahayu, 2014).
Previous research on the influence of intellectual
capital growth on the company’s value is still
fragmented and has not yet formed a consensus.
Research on intellectual capital and intellectual
capital growth on a company’s performance in
Indonesia had been conducted by Maski (2013) and
Kurniawan (2013). The results of both studies
proved that intellectual capital had a positive and
significant influence on the company’s performance.
These results were inversely proportional to the
research of Ulum et al. (2008), which proved that the
294
Rahmayanti, M. and Hidayat, W.
The Effect Of Intellectual Capital Growth on The Value of The Company.
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 294-301
ISBN: 978-989-758-339-1
Copyright © 2018 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved

growth of intellectual capital did not affect the future
performance of the company.
Chen et al. (2005) analyzed the relationship
between the intellectual capital and a company’s
performance and its value in Taiwan, with the result
of intellectual capital having a positive effect on
both as well as being able to become an indicator of
the company’s future performance. Different results
were found in the study of Solikhah et al. (2010),
which proved that the intellectual capital did not
affect the value of the company. Due to the
inconsistency of the results of the research, a
variable is needed that can bridge the influence of
the growth of the intellectual capital to the
company’s value. In this study, the variable used
was the company’s performance.
2 LITERATURE REVIEW
The research by Chen et al. (2005) on the influence
of the intellectual capital, R&D expenditure (RD)
and advertising expenditure (AD) of the company on
the performance and the value of the company was
conducted on 4,254 public companies listed on the
Taiwan Stock Exchange of the period 1992-2002.
The results of this research provided empirical
evidence that intellectual capital positively impacted
company value, reflected through the Market to
Book Value (MtBV), and company performance,
reflected through the Return on Assets (ROA),
Return on Equity (ROE), Growth in Revenue (GR),
and Employee Productivity (EP), both in the present
and in future, and that R&D affected company
performance. The research by Tan et al. (2007) on
the influence of the intellectual capital value and the
intellectual capital growth on company performance
was conducted on 150 companies listed on the
Singapore Stock Exchange from 2000-2002. Tan et
al.’s (2007) results stated that there was a positive
influence of intellectual capital on the company’s
performance as projected with ROE, Earning Per
Share (EPS), Annual Share Return (ASR) and the
company’s future performance, and there was a
positive influence between Return on Gross Invested
Capital (ROGIC) and the company’s performance.
Research conducted by Ulum et al. (2008) on the
influence of intellectual capital value and intellectual
capital growth on the company’s performance used a
sample of 130 banking sector companies in
Indonesia in the period 2004-2006.
Ulum et al.’s (2008) results showed empirical
evidence that there was a positive influence of
intellectual capital on the company’s performance,
but there was no positive effect of the intellectual
capital growth with the future performance of the
company.
A study by Solikhah et al. (2010) on the
influence of intellectual capital on the financial
performance, growth and value of the company was
conducted on 116 manufacturing companies listed
on the Indonesia Stock Exchange in 2006-2008. In
this study, the financial performance was projected
by current ratio (CR), debt to equity ratio (DER),
total asset turnover ratio (ATO), return on
investment (ROI), and ROE.
The growth of the company is projected by two
indicators, namely profit growth (equity growth) and
asset growth, and the company’s value is projected
by firm’s market value (MVal). This study used
partial least squares regression and one-way
ANOVA in analyzing the data. The results of the
research by Solikhah et al. (2010) showed empirical
evidence that there was a positive influence of
intellectual capital on financial performance and
growth, but there was no intellectual capital
influence on the company’s value.
A study by Kurniawan (2013) on the influence of
intellectual capital to the company’s financial
performance was conducted on 44 non-financial
public-sector companies listed on the Indonesian
Stock Exchange (IDX) in the period 2009-2011. The
results show empirical evidence that intellectual
capital had a positive influence on the financial
performance projected with ROA, GR, and ATO.
The average growth of intellectual capital (ROGIC)
in 2009 to 2010 had no effect on financial
performance in 2010, while ROGIC in 2010 to 2011
had a positive impact on financial performance in
2011.
A study by Maski (2013) on the influence of
value and growth of intellectual capital on the short-
term and long-term performance of a company was
performed on 22 banking companies in 2005-2008.
Maski’s (2013) results showed empirical evidence
that the intellectual capital (VAIC™ ROGIC) had a
positive and significant influence on the financial
performance, both in the short and the long term.
Research by Khansari et al. (2015) on the
influence of intellectual capital growth on
accounting, financial performance, and market
function was conducted on 74 large and medium
companies registered on the Tehran Stock Exchange
from 2009-2013. Khansari et al.’s (2015) results
showed empirical evidence that there was a positive
influence of intellectual capital growth (ROGIC) on
financial performance projected by the ROA, and
ROE and there was a positive ROGIC effect on the
The Effect Of Intellectual Capital Growth on The Value of The Company
295

market function projected by earnings per share
(EPS) and economic value added (EVA).
3 HYPOTHESIS
3.1 The Influence of Intellectual Capital
Growth on the Corporate
Performance
RBV theory and competitive advantage state that the
company is able to create value and competitive
advantage if it utilizes, manages, and develops its
superior resources, in this case its intellectual
capital, on an ongoing basis so that the company is
able to create a unique strategy that is superior to
those of its competitors.
In stakeholder theory, the company must be
responsible in providing benefits to the stakeholders
through good resource management so that it can
create value as the impact of the activities
undertaken so as to minimize the losses that arise for
stakeholders, so that the companies that utilize their
intellectual capital effectively and efficiently will
increase their productivity. The increased
productivity will improve the company’s
performance. Good performance will increase the
value of the company in the eyes of the market.
Research studies were conducted by Chen et al.
(2005) and Tan et al (2007). The research
empirically proved that the intellectual capital had a
positive effect on the company’s performance. The
same studies were also conducted by Ulum et al.
(2008) and Sudibya and Restuti (2014), who
examined intellectual capital in companies in
Indonesia. On the basis of these considerations, the
first hypothesis can be formulated as follows:
H1: The growth of intellectual capital has a
positive effect on the company’s performance.
3.2 The Influence of Company
Performance on Company Value
The company’s profit, in addition to being an
indicator of its ability to fulfill its obligations for its
funders, is also an element in the creation of the
company’s value that shows the prospects of the
company in the future. The increase in profits
indicates an increase in the company’s performance.
Increased earnings can also show the prospect of a
better company because it means the potential
increase in profits obtained by the company, so that
will increase investor confidence. By using
intellectual capital owned the company, the
company can use it to manage its assets to be more
efficient. The more efficient the company in
managing its assets, the more profitability will
increase, so the company’s performance will also
increase. So, if the performance of the company
increases, which is marked by the increase of
profitability, this will attract the attention of
investors, thus increasing the value of the company
as investors become interested to invest in the
company.
If the resources owned by the company can be
managed effectively and efficiently then this can
encourage performance improvement for the
company, to which stakeholders will respond
positively.
The results of a study conducted by Mahendra
(2011) showed that there was a positive influence of
financial performance measured by profitability to
the value of the company. On the basis of these
considerations, the second hypothesis can be
formulated as follows:
H2: Company performance has a positive effect
on company value.
3.3 The Influence of Intellectual Capital
Growth on the Company’s Value
Referring to the resource-based theory, competitive
advantage, and stakeholder theory as a whole stated
how the company can create value and competitive
advantage by utilizing its resources, in this case its
intellectual capital, in order to survive and compete
with its competitors. Intellectual capital is not only
exploited but must always be developed and
managed well so that the competitive advantage and
value added obtained by the company can last over
the long term and be sustainable. On that basis, it
can be concluded that the better the company in
utilizing, managing, and developing the resources it
has, the higher the value created by the company.
Value creation and competitive advantage that grow
from year to year show that the company is
consistently able to manage its intellectual capital
well. Companies that are able to create value added
and competitive advantage on an ongoing basis get
more valuation in the eyes of investors, affecting the
increasing value of the company (Randa & Solon,
2012). Previous research showing a positive
influence between intellectual capital and firm value
was conducted by Belkaoui (2003) and Chen et al.
(2005). On the basis of these considerations, the
third hypotheses can be formulated as follows:
JCAE Symposium 2018 – Journal of Contemporary Accounting and Economics Symposium 2018 on Special Session for Indonesian Study
296

H3: Intellectual Capital Growth positively affects
the company’s value.
3.4 The Influence of Intellectual Capital
Growth on the Company’s Value
with the Company’s Performance
as Intervening Variable
In order to maintain its superiority, the company is
expected to not only be able to utilize the intellectual
capital owned but also to be responsible to always
make improvements and develop them. Intellectual
capital developed consistently leads to sustained
growth of sustainable intellectual capital so as to
enable companies to survive amid business
competition.
The growth of intellectual capital is followed by
the growth of intellectual capital components
themselves, namely human capital, structural capital,
and customer capital. As the three components grow,
the company has better human resources, better
implementation of strategy and risk management, as
well as better relationships with outsiders such as
customers, suppliers and the government. These
conditions improve the company’s performance in
terms of operational, financial, and human resources.
These performance improvements also have an
impact on the company’s increased productivity.
The higher the productivity of the company, the
more the profit generated will increase. The higher
the profit, the better the impression investors have of
the company. The good impression held by investors
makes the company’s stock demand increase. This
increased demand increases the value of the
company simultaneously.
Previous research conducted by Firer and
Williams (2003), and Chen et al. (2005) showed that
intellectual capital had a positive effect on the
performance and market value of the company.
H4: The growth of intellectual capital has a
positive effect on the company’s value with the
company’s performance as intervening variable.
4 RESEARCH METHOD
The approach used in this research was quantitative.
The population was all of the banking companies
listed on the Indonesian Stock Exchange in the
period 2011-2015. The sampling used purposive
sampling technique with criteria to release financial
statements that did not include data-related variables
studied. The final sample selected was the data of 68
companies.
ROGIC was measured using VAIC
TM
(Value
Added of Intellectual Capital) developed by Pulic
(1998) by calculating the value added of each aspect.
The company’s performance was calculated by
using three performance ratios: ROA (Return on
Asset), CAR (Capital Adequacy Ratio), and LDR
(Loan to Deposit Ratio). The company’s value was
calculated by using MtBV.
The data analysis method used in this research
used partial least square (PLS) regression. The PLS
model was used for several considerations, among
others: the model used was a tiered causality
relationship marked by the intervening variable that
became the liaison between independent variables
and dependent variable; the model formed was
recursive in that it only had a one-way relationship
and there was no reciprocal relationship between the
dependent variable and the corresponding
independent variable; and the measured variable was
proxied by more than one proxy.
5 RESULT
5.1 The estimation of Outer Model
Measurements
The measurement of the outer model was carried out
by doing the measurement of reflective indicator that
was estimated with the value of the outer loading
factor. Chin (1998) stated that the minimum limit of
the value of the outer loading factor was the feasible
indicator used to reflect a certain variable amounted
to 0.5. The result of processing the data is presented
in the following table:
Table 1: The result of the estimation value of outer
loading factor, Iteration 1
VARIABLE INDICATOR
THE VALUE OF
OUTER
LOADING
ROGIC R-VACA 0.933
R-VAHU 0.925
R-STVA -0.119
COMPANY
PERFORMANCE
ROA 0.741
CAR -0.390
LDR 0.761
THE VALUE OF
COMPANY
MVE 1.000
Source: Processed data (2016)
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The indicator that has value of the outer loading
factor under 0.5 is assumed less suitable as an
indicator that can reflect each variable that is related.
To get an optimal result, the indicators that cannot
reflect the specified variable will be eliminated and
will be recalculated over the value of the outer
loading factor. The result of processing the data is
presented in the table below:
Table 2: The result of the estimation value outer loading
factor, Iteration 2
VARIABLE INDICATOR
OUTER
LOADING
ROGIC R-VACA 0.931
R-VAHU 0.931
COMPANY
PERFORMANCE
ROA 0.788
LDR 0.788
COMPANY
VALUE
MVE 1.000
Source: Processed data (2016)
From the result, all indicators have value of outer
loading factor greater than 0.5. It can be concluded
that all indicators are suitable to become an indicator
that can reflect on each corresponding variable.
5.2 Test Fit Model
A test fit model was conducted to ensure that the
variables used in the study are free from
multicollinearity problems between indicators and
variables used. The variables are considered fit if the
value of p is smaller than 0.05. The result of
processed data of the model fit test can be seen from
the table below:
Table 3: The result of Model Fit Test
VARIABLES ORIGINAL SAMPLE (O)
Average Path
Coefficient (APC)
0.257; P=0,001
Average R-Squared
(ARS)
0.145; P=0,028
Average Adjusted R-
Squared (AARS)
0.134; P=0,036
Average Block VIF 1.040
Average Full
Collinearity
1.018
Source: Processed data (2016)
5.3 The estimation of Inner Model
Measurements
The inner model testing was carried out to measure
the relationship of all the variables in this study. The
relationship between variables measured by using
the predictive-relevance (Q2) value that is calculated
based on the value of R-Square Adjusted (Adjusted
R2) of each endogenous variable. The values of R-
Square Adjusted (Adjusted R2) for each endogenous
variable are presented in the table below:
Table 4: The value of R-Square Adjusted (Adjusted R2)
Endogenous Variables Nilai Adjusted R-
Squared (R2)
Company Performance 0.049
Company Value
0.240
Source: Processed data (2016)
From the table, it can be proven that the variables of
company performance amounted to 39.80% by the
variable value of growth intellectual capital, whereas
for the variables of the company values amounted to
28% by the variable value of intellectual capital,
variable growth of intellectual capital, and variable
of company performance. To view the relationship
of all the variables in the system that was built in
this study, then conduct the calculation of
predictive-relevance (Q2) as follows:
Q2 = 1 – (1 - R2KP) (1 - R2NP)
Q2 = 1 – (1 – 0.049 (1 - 0,240)
Q2 = 0.27724
Based on the calculation result, the obtained
value of predictive-relevance (Q2) amounted to
0.27724. It showed that in the model built the
phenomenon of company value amounted to 27.24,
while the rest is explained by other variables that are
not involved in this study.
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298

Table 5: The result of t-statistic test of Direct Effect
Relationship
between
variables
Original
Sample
P Values
ROGIC Æ KP 0.222 0.007
KP Æ NP 0.468 <0.001
ROGIC Æ NP -0.081 0.192
Source: Processed data (2016)
Table 6: The result of t-statistic test of Indirect Effect
Relationship
between
variables
Original Sample VAF
ROGIC Æ KP
Æ NP
0.103896 453.77%
Source: Processed data (2016)
5.4 Research Result
5.4.1 The Effect of ROGIC on Company
Performance
The result of this study by using statistical tests
showed that the variable growth of intellectual
capital (ROGIC) affected significantly the company
performance. The result showed that banking
companies that exist in Indonesia are able to manage
optimally both aspects of intellectual capital, namely
capital adequacy (physical capital) and human
capital (human resource). Banking companies in
Indonesia are proven to be able to increase their
long-term company performance by conducting
management on the physical model. In addition,
organized the process of resource effectively and
efficiently in order to achieve the objectives of the
company.
5.4.2 The Effect of Company Performance
on Company Values
The research result by using statistical tests showed
that the variables of company performance affect
significantly the company values, so it can be
concluded that the company performance that is
projected with the return on asset (ROA) and loan
to deposit ratio (LDR) affect significantly and give a
positive impact on the company values, which are
projected by market value equity (MVE).
Company performance describes the work
achievement that has been achieved by the company
in certain period. Employees as the aspect of human
capital have been successful to be placed and get
themselves as company stakeholders so that they
will try to maximize their intellectual ability to
create added value for the company in the form of an
increase in ROA and the stability of LDR value. The
higher the company performance, the better the
company condition. This means the company is able
to utilize the capital invested by the investor very
well and hence increase the income of the company.
5.4.3 The Effect of ROGIC on Company
Values
The result of this study by using statistical tests
showed that the variable growth of intellectual
capital has a negative impact, but a not significant
one, on company values, meaning that when there is
increase in the growth of intellectual capital this will
cause a decrease on company value. This result
showed that the growth of intellectual capital of a
certain company cannot yet become a certain
measure that is used to give value on a company.
The different value of company intellectual
capital will affect the company performance that is
produced and will then produce company value, so
there is no direct connection between the growth of
company intellectual capital on company value, but
rather through the company performance as
mediator. The increased management on physical
capital and the utilization of human resources cannot
affect directly the increase of the company’s value.
5.4.4 The Effect of ROGIC on Company
Value with Company Performance as
Intervening Variable
The results of this study showed that there is a
positive and insignificant effect between the growth
of intellectual capital on the performance of the
company, as well as there being a positive and
significant effect between the company’s
performance and company value. In this study, there
is also a full mediation effect between the growth of
intellectual capital, company performance, and
company value with VAF value above 80%
(453.77% > 80%), which proves that the company’s
performance variable can be fully mediated.
The results of this analysis indicate that the more
efficient and effective companies are in managing
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intellectual capital owned then the more this will
provide an increase in the company’s performance
and have an effect on the increase in company value.
The hypothesis test states that partial growth of
intellectual capital has no significant effect on
company value. These results showed that company
value cannot be assessed directly from the growth of
intellectual capital, but through the intervening
variable of company performance.
Referring to the resource-based view and the
theory of competitive advantage, the company has
been able to apply the design strategy by utilizing its
intellectual capital resources in a sustainable way to
maintain its existence and create competitive
advantage so that it can compete with other
companies.
6 CONCLUSION
Based on the discussion above, the following
conclusions can be given:
1. The growth of intellectual capital has a positive
and significant impact on company performance.
Companies that are capable of managing well-
owned resources will generate added value that
will be reflected in good financial performance.
This is in line with the resource-based view. The
utilization of intellectual capital value effectively
and efficiently will contribute significantly to the
achievement of competitive advantage.
2. Companies that have good company
performance will give good signals to the
market. The good signals that are captured by the
market reflect good company value as well. This
is in accordance with the theory of signals, i.e.
the performance of a certain company that is
reflected in its financial reports can provide a
signal to the market so that the market can give a
positive response by providing a good
assessment of the company.
3. The growth of intellectual capital negatively
affects the value of the company directly. This
shows that the management of the intellectual
capital of banking companies is not optimal and
the company has not focused on the management
of intellectual capital and has not used it as a
competitive advantage. The company is also still
focused on short-term interests, namely
increasing financial returns.
4. The growth of intellectual capital has a positive
effect on company value through company
performance as an intervening variable. This
shows that the management of the intellectual
capital of banking companies has been good, so
that affects the increase of company
performance. Good company performance is one
of the indicators for investors in investing, so a
good company performance will increase the
value of the company. In addition, banking
companies have focused on managing
intellectual capital and have used it as a
competitive advantage.
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