Observing unobservable: estimating the time-varying efficiency of intellectual capital

Abstract

Purpose

Company intellectual capital (IC) is nowadays considered as a key resource that can transform a company’s value. For this reason, the efficiency of IC is crucial for all stakeholders. Evaluating efficiency is difficult, because IC is partly unobservable and its efficiency varies across time. The aim of this study is to suggest a methodology for estimating the dynamic efficiency of a company’s intellectual resources.

Design/methodology/approach

The panel data model suggested by Kneip et al. (2012) is used to estimate dynamic efficiency. The main feature of this model is that the unobservable component has a multi-dimensional factor structure. Taking advantage of the ability of this model to control for unobserved complex heterogeneity, the authors use the results in further stochastic frontier analysis. A data set containing information about Russian companies for the period from 2001 to 2010 is used.

Findings

In this paper, the dynamic efficiency of Russian companies is estimated. It is shown that, using the traditional efficiency estimate, companies can be overestimated.

Research limitations/implications

The main limitation of the suggested methodology is that it is necessary to have a long panel data structure.

Practical implications

Taking advantage of time-varying efficiency, one can estimate the efficiency growth rate as a measure of performance, standard deviation as a measure of risk and autocorrelation as a measure of stability.

Originality/value

This is the first study to present clear evidence of the time-varying nature of IC efficiency. On the methodological side, the paper presents a fairly simple method capable of estimating various indicators of a company’s efficiency.

Citation

Parshakov, P. (2017), "Observing unobservable: estimating the time-varying efficiency of intellectual capital", Measuring Business Excellence, Vol. 21 No. 4, pp. 377-387. https://doi.org/10.1108/MBE-05-2017-0024