Uncovering the non-linear association between VAIC and the market value and financial performance of firms

Abstract

Purpose

This paper aims to address empirical analyses of the association of the VAIC and its components with firms’ market and financial performance, demonstrating that the ill definition of variables and constructs is responsible for a non-linearity concealed in the VAIC formula between two of its components (the Structural Capital Efficiency and the Human Capital Efficiency).

Design/methodology/approach

Through a conceptual analysis the paper identifies and formalises the non-linearity concealed in the VAIC formula and clarifies the relevant issues through an empirical analysis of a sample of Italian listed companies.

Findings

The paper finds that the non-linearity hidden in the VAIC formula should lead scholars to completely revise the ways they test the association of the VAIC and the market and financial performance of the firm. Useful insights are also provided for scholars interested in investigating the role of human capital, for those involved in analysing the interrelations among capitals through the introduction of interaction terms in their regression models and for researchers proposing modified versions of the VAIC. Practitioners could benefit from the paper as the non-linearity here discovered leads to a substantial of the decision-making based on the VAIC.

Originality/value

The paper offers new insights into analyses using the VAIC as it uncovers a non-linearity hidden in the VAIC, which has hitherto not been reported in the literature. The existence of this non-linearity has substantive implications for previous and future research in this domain.

Citation

Marzo, G. and Bonnini, S. (2023), "Uncovering the non-linear association between VAIC and the market value and financial performance of firms", Measuring Business Excellence, Vol. 27 No. 1, pp. 71-88. https://doi.org/10.1108/MBE-08-2021-0105