Mark Traas

Intellectual Capital: a Market for Lemons Approach Mark Traas

This thesis examines the concept of intellectual capital and its effect on share prices as a means to solve the lemons problem existent in current capital markets. In order to see whether intellectual capital could be part of a solution to combat this problem, the VAICTM was employed to determine the relevance of intellectual capital in relation to the stock price. The results of the regressions carried out show that the VAICTM is significant and provides increased explainability in the variation of stock prices. This leads to the conclusion that intellectual capital is an important determinant of share returns. Time comparisons of the R2 of calendar year regressions yielded no definitive conclusions regarding the conjecture that there was increased relevance of the measure of intellectual capital over time. Altogether, the results point towards the hypothesized relation between intellectual capital information and share returns. This indicates that high quality companies that wish to seek external financing in a market facing the lemons problem would benefit from the increased disclosure of intellectual capital information.