Purpose – The purpose of this paper is to offer some advancing in the understanding of the Market-to-Book Value gap (or ratio) as the symptom and the metrics for IC value, and to discuss the major criticisms against it. The original contribution of the paper lies in developing the analysis of the meaning of the Market-to-Book Value from a theory-of-the-firm perspective. Such an approach is employed to shed light on the two sides of Market-to-Book Value: book and market values. Design/methodology/approach –The paper reviews research on Market-to-Book Value and the theory-of-the firm, and employing a deductive approach explores criticisms and advantages of the use of the Market-to-Book Value gap as the symptom and the metrics of IC according a specific theory of the firm. Findings – The research finds that the presumption that a “accounting fallacy” exists, which refers to the gap between market and book values, must be revised depending on the chosen theory of the firm. In fact, depending on the theory of the firm to which IC scholars refer, book value could not necessarily equate market value, even if the latter was unbiased. Again, market value could not be able to express the value of IC. Practical implications – Once reasons for abandoning the misbelief that accounting standards should be set in order to close the gap are highlighted, research on IC can move towards more appropriate goals. On the basis of the criticism presented in this paper, empirical research that makes use of market and book data could be carried on in a way more consistent with theoretical background. The paper highlights how the use of MBV approach can lead to mistakes without a clear reference to a theory of the firm. Originality/value – The paper focus on the meaning of the Market-to-Book Value from a theory-of-the-firm perspective, helping researcher in avoiding potential mistakes and inconsistencies in their work, and also suggesting some consequences on the practice of IC. Keywords: Intellectual capital, Market-to-book ratio, Theory of the firm, Behavioural finance. Paper type: Conceptual paper

The market-to-book value gap and the accounting fallacy

MARZO, Giuseppe
2013

Abstract

Purpose – The purpose of this paper is to offer some advancing in the understanding of the Market-to-Book Value gap (or ratio) as the symptom and the metrics for IC value, and to discuss the major criticisms against it. The original contribution of the paper lies in developing the analysis of the meaning of the Market-to-Book Value from a theory-of-the-firm perspective. Such an approach is employed to shed light on the two sides of Market-to-Book Value: book and market values. Design/methodology/approach –The paper reviews research on Market-to-Book Value and the theory-of-the firm, and employing a deductive approach explores criticisms and advantages of the use of the Market-to-Book Value gap as the symptom and the metrics of IC according a specific theory of the firm. Findings – The research finds that the presumption that a “accounting fallacy” exists, which refers to the gap between market and book values, must be revised depending on the chosen theory of the firm. In fact, depending on the theory of the firm to which IC scholars refer, book value could not necessarily equate market value, even if the latter was unbiased. Again, market value could not be able to express the value of IC. Practical implications – Once reasons for abandoning the misbelief that accounting standards should be set in order to close the gap are highlighted, research on IC can move towards more appropriate goals. On the basis of the criticism presented in this paper, empirical research that makes use of market and book data could be carried on in a way more consistent with theoretical background. The paper highlights how the use of MBV approach can lead to mistakes without a clear reference to a theory of the firm. Originality/value – The paper focus on the meaning of the Market-to-Book Value from a theory-of-the-firm perspective, helping researcher in avoiding potential mistakes and inconsistencies in their work, and also suggesting some consequences on the practice of IC. Keywords: Intellectual capital, Market-to-book ratio, Theory of the firm, Behavioural finance. Paper type: Conceptual paper
2013
Marzo, Giuseppe
File in questo prodotto:
Non ci sono file associati a questo prodotto.

I documenti in SFERA sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11392/1871119
 Attenzione

Attenzione! I dati visualizzati non sono stati sottoposti a validazione da parte dell'ateneo

Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 7
  • ???jsp.display-item.citation.isi??? ND
social impact