Market Valuation of Intangible Capital in China; at the firm level, human capital has the strongest influence on firms’ market performance

April 9, 2013 Leave a comment

Market Valuation of Intangible Capital in China

Yin Yu University of Reading – ICMA Centre

Carol Padgett University of Reading – ICMA Centre

March 21, 2013

Abstract: 
We introduce a new model to identify and value firms’ intangible capital relative to that of their industry peers and competitors. The model introduced in this paper distinguishes effects from human capital, external capital, and organizational capital at both industry level and firm level. Using firm data from Shanghai Stock Exchange, we find that the traditional asset pricing model could be statistically enhanced by the presence of intangible capital and that market is able to recognize the value of intangible capital. We also look into the interactive effect from different types of intangible capital by dividing firms into portfolios according to their model value. Our results suggest that at the firm level, human capital has the strongest influence on firms’ market performance and that external capital is the most difficult to capture.

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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