Value added intellectual coefficient (VAIC): a critical analysis

Purpose – The purpose of this study is to analyse the validity of the value added intellectual coefficient (VAIC) method as an indicator of intellectual capital. Design/methodology/approach – The paper describes VAIC through its calculation formulae and aims to establish what exactly it is that the method measures. It also looks in detail at how intellectual capital is understood in the method, and discusses its conceptual confusions. Furthermore, the paper tests the hypothesis according to which VAIC correlates with a company's stock market value, and reflects the contradictory results of earlier studies. Findings – The analyses show, first, that VAIC indicates the efficiency of the company's labour and capital investments, and has nothing to do with intellectual capital. Furthermore, the calculation method uses overlapping variables and has other serious validity problems. Second, the results do not lend support to the hypothesis that VAIC correlates with a company's stock market value. The main reasons behind the lack of consistency in earlier VAIC results lie in the confusion of capitalized and cash flow entities in the calculation of structural capital and in the misuse of intellectual capital concepts. Practical implications – The analyses show that VAIC is an invalid measure of intellectual capital. Originality/value – The result is important since the method has been widely used in micro and macro level analyses, but this is the first time it has been put to rigorous scientific analysis.