Unlocking the True Value of Intellectual Capital: A Study of the Valuation Relevance of Intellectual Capital in an M&A Intensive Era

Abstract: Capital market actors must understand the fundamental value-drivers in society, yet accounting standards face difficulties in capturing Intellectual Capital (IC) information. Meanwhile, the number of acquisitions is ever-growing, but research on the valuation relevance of IC in mergers and acquisitions (M&A) is lacking. This paper proposes a qualitative single case study with a performative view of IC to address this gap and examine its behavioral information usefulness throughout the M&A process. By conducting an interview and document-based analysis of a large-cap firm in the tech sector, the study finds that while IC's valuation relevance cannot be ascertained, it is connected to the degree of disentanglement and overflow, which varies across the different phases of the M&A process. Moreover, IC is found to be transformable, sometimes from an asset to a liability, and to serve as a determinant between value creation or value destruction. By adopting a more holistic approach, this paper contributes to the field of valuation relevance and extends existing literature by demonstrating the non-uniformity of IC's valuation relevance and its transformative nature. The study also presents a valuable addition to the performative research field within the realm of IC. Future research should continue studying IC's role in value-creating processes, extend the valuation relevance of IC in M&A from the sell-side's perspective, and develop mechanisms to capture the dynamic value of IC.