The value of knowledge: Discovering hidden capital

Abstract

The purpose of this research is to overcome the weaknesses of intellectual capital (IC) estimation models, constructing and empirically verifying a new model that has the same strengths as the value-added intellectual coefficient (VAIC) but not its weaknesses. To better outline our analysis with respect to the many meanings that can be evoked by the term IC in the literature, we also define a new term: “hidden capital” (HDC) in the balance sheet. First, we analyze the epistemological and methodological aspects of the models existing in the literature, highlighting their weak points. Subsequently, using a logical-deductive methodology, we build a theoretical model, named “HDC”, to discover the “hidden capital”. Finally, we proceed to the empirical verification of the HDC model on a sample of over 1,800 listed European companies observed in the pre-pandemic period 2011–2019 (over 10,000 firm-year observations). The empirical verification through a regression panel model on eight European countries shows that all the variables of the HDC model are, unlike VAIC, significant and directly correlated to Tobin’s Q.