Which IC is more important? A life‐cycle perspective

Abstract

Purpose

The purpose of this paper is to investigate value‐relevant information provided by intellectual capital (IC) beyond financial performance under different life‐cycle stages.

Design/methodology/approach

The life‐cycle classification method and the residual income model are used to examine the information technology industry.

Findings

The empirical results show that the value‐relevant information provided by IC under the growth, maturing, and stagnant stages can be ranked in order (from high to low) of custom, innovation, process, and human capital. Specifically, the empirical results indicate that overall IC provided the most value‐relevant information in the stagnant stage and the lowest value‐relevant information in the growth stage.

Research limitations/implications

This paper reveals that evaluating the company market value merely by financial performance involves a number of limitations, thereby requiring IC to supplement the process. The internet downturn in the mid‐2000s might have likewise affected the categorization of life‐cycle stages and the value‐relevant information provided by intellectual capital during the “bubble” period.

Practical implications

Managers and investors should not merely focus on financial performance as the main value‐relevant information, but a thorough review of IC in different life‐cycle stages should be made in order to avoid making incorrect decisions.

Originality/value

This paper contributes to the existing literature by exploring customer, process, innovation, and human capital which, significantly, have different value‐relevant information in different life‐cycle stages.

Citation

Liang, C. and Lin, Y. (2008), "Which IC is more important? A life‐cycle perspective", Journal of Intellectual Capital, Vol. 9 No. 1, pp. 62-76. https://doi.org/10.1108/14691930810845803