Review of Quantitative Finance and Accounting

, Volume 45, Issue 2, pp 279–304 | Cite as

The stock market valuation of intellectual capital in the IT industry

  • Hung-Chao Yu
  • Wen-Ying Wang
  • Chingfu Chang
Original Research


This study adopts the P/V ratio developed from the residual income valuation model to examine whether Taiwan’s IT companies with more intellectual capital are more likely to be mispriced by the stock market. We focus on four types of intellectual capital: human capital (measured by employees holding graduate degrees and ratio of labor costs to net sales), innovation capital (measured by R&D intensity and royalty ratio), process capital (measured by working capital turnover and fixed asset turnover), and relational capital (measured by marketing expense ratio and sales growth rate). Using 751 firm-observations in Taiwan’s IT industry during 2003–2006, the empirical results show that Taiwan’s stock market appears to overprice IT companies’ innovation capital but underprice their human, process, and relational capital. Notably, the mispricing problem is more prominent on the human capital than on the other three types of intellectual capital. A further test indicates that the mispricing of intellectual capital is due to Taiwan’s domestic investors rather than foreign institutional investors. Particularly, the mispricing problem is more prominent on the human and relational capital. The implications of these findings are discussed.


Intellectual capital Human capital Innovation capital Process capital Relational capital Mispricing 

JEL Classification

M41 G11 G32 G14 



We would like to thank participants at AAA 2009 Annual Meeting (New York, US) and one anonymous reviewer for their valuable comments on an early version of this paper. All the errors are ours. Great help and assistance from Ling-Ching Chan and Ting-Kai Chou are highly acknowledged.


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© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Department of Accounting, College of CommerceNational Chengchi UniversityTaipeiTaiwan, ROC

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