Is the Value Added Intellectual Coefficient (VAIC)™ an Adequate Method to Measure Intellectual Capital?

Purpose - The purpose of this study is to improve the value added intellectual coefficient (VAIC (TM)) method, the most widely method used to measure the firm's efficiency in measuring intellectual capital, after having illustrated its main limitations. Design/methodology/approach - The paper illustrates VAIC (TM) method and critically analyzes the modalities followed in building the indicator, with the aim to underline the main shortcomings in using it, especially in econometric regressions testing the association among IC and firm performance. Moreover, the article tries to overcome the VAIC (TM) limits introducing appropriate corrections in its formulation (interacted VAIC (TM)), in order to consider both direct and indirect effects of human capital. Furthermore, the paper tests how basic and interacted VAIC (TM) correlates with a company's stock market value, by applying VAIC (TM) and interacted VAIC (TM) to a sample of companies and comparing the effectiveness of the two methods. Originality/value - This is one of the first rigorous scientific analysis concerning a widely used method in measuring intellectual capital. Furthermore, the paper proposes an extended VAIC (TM) formula to take into consideration the synergies between the IC subcategories in order to create value. Practical implications - The analyses suggest that the basic VAIC (TM) suffers of many limitations and that researchers could achieve more significant results using the extended VAIC (TM) method to measure intellectual capital.