Firm’s Value Exploration: The Impact of Intellectual Capital and Net Working Capital

Intellectual capital (IC) gains more importance nowadays, and hence, this study investigates the impact of IC and net working capital (NWC) on firms’ values creation. If IC has a greater impact than NWC, it indicates that automotive and components companies in Indonesia have paid attention to IC’s contribution to increase company value. This study was conducted on 15 automotive and components companies from 2011 to 2018 as this industry utilises more IC and NWC than any other industries. We used panel data regression analysis with random effect model to test the hypothesis of 92 data, with IC calculated through the MVAIC model, and firm’s value is measured by Tobin’s Q. The results show that IC has no significant effect on firms’ value. Meanwhile, NWC has a significant negative effect on firms’ values creation. These important findings suggest that automotive and components firms should apply strategic management in managing IC and NWC to increase the firm’s value.


INTRODUCTION
Investments in intangible assets are important in the digital era as a means to increase the competitive advantage and competitiveness of a company (Kemenkeu, 2019;Duodu & Rowlinson, 2019). The utilization of intangible assets during the last four decades has increased sharply and has shifted the percentage of ownership of tangible assets in companies (see Figure 1). This shift can also be seen in the five largest global companies that are members of the S&P 500, which also have intangible asset values that are greater than the values of their tangible assets (see Figure 2). It indicates that there are significant changes that occur in company's asset structure each year.
In line with the changes in global asset structure, Indonesia in 2015 entered the era of Asean Economic Community (AEC) (ASEAN, 2013) in order to create competitive, innovative, and dynamic ASEAN countries (Kemlu, 2019). The use of physical resources is no longer sufficient to support Indonesia in competing with other ASEAN countries due to the characteristics of physical resources that are easily imitable and less innovative (Soetanto & Liem, 2019). The era of AEC has shifted business competition from price perspective to product quality and design perspective (Kemendag, 2016). These changes require companies to create new strategies to make their products have value added, one of which is the use of intangible assets. In addition, companies also need to identify and exploit existing resources to create strategies that are different from those of other companies (Paek et al., 2015). The utilization of these resources is related to the Resource Based View (RBV).
RBV views that companies should pay attention to resource combinations that are not easily imitated or replaced (Barney, 1991;Mahoney & Pandian, 1992;Wernerfelt, 1984). Resources in the RBV are considered to be very heterogeneous (Barney, 1991). With the heterogeneity of resources, a resource may become rare when it is not easily imitated, transferred, or replaced (Bayraktaroglu et al., 2019). Rare resources are very important to improve the competitiveness and performance of a company, which ultimately have an impact on firm value (Bayraktaroglu et al., 2019). The main objective of RBV is to help management to identify resources that can help increase competitive advantage through resource advantage (Barney, 1991). All assets owned by a company are potential strategic assets that become a source of wealth, including net working capital (NWC), fixed assets, and intangible assets in which IC is contained (Kamath, 2007;WIPO, 2010). Therefore, the combination of IC and NWC is expected to increase competitive advantage, which in turn can increase firm value according to the RBV.
Intellectual capital (IC), as an intangible asset, is considered a resource that increases value, growth, innovation, and development of a company's competitive advantage because of its rare and not-easily imitable characteristics (Bayraktaroglu et al., 2019;Molodchik et al., 2019;Nimtrakoon, 2015). This makes IC as one of the most distinctive assets, and if a company invests more in IC, the company's competitive advantage and performance can be better (Huang & Huang, 2020;Nadeem et al., 2017;Suryani & Nadhiroh, 2020;Zakery & Afrazeh, 2015). IC is a combination of several components: human capital efficiency (HCE), structural capital efficiency (SCE), capital employed efficiency (CEE), and relational capital efficiency (RCE). HCE refers to the skills and knowledge of employees. SCE includes structural capital efficiency in the form of internal relationships within the company, which are reflected in a system, procedure, database, network, and daily business processes of the company (Khalique et al., 2015). Meanwhile, CEE consists of physical and financial capital in a company, and RCE is related to a company's ability to establish cooperations with stakeholders. In addition, RCE also allows companies to access information about customers that are useful to determine customer needs precisely (Massaro et al., 2015). IC components are closely related to company's internal relationships, and companies need to implement strategic management in allocating internal resources effectively and efficiently (Huang & Huang, 2020;Low et al., 2015). Strategic management within a company is expected to be able to help the company's internal relations run well with the right allocation of resources. If IC is related to intangible knowledge capital, then NWC is the physical capital of a company (Stewart & Ruckdeschel, 1998). NWC is the difference between current assets and current liabilities. A positive NWC means that current assets are sufficient enough to pay off company's current liabilities. A company must be able to distinguish NWC from IC because of their different characteristics and effects on the firm's value. In other words, if the company is able to differentiate between IC and NWC, it will be easier to prioritize assets.
Several previous studies that observed the influence of NWC on firm value have shown different results. Ownership of NWC at a certain limit resulted in a high firm value (Afrifa, 2016), but if it exceeded that limit, firm value would actually decrease (Ahangar & Shah, 2017;Wasiuzzaman, 2015). The decrease in firm value was caused by investors who assumed that a NWC that was too high indicated a company's limited ability to manage current assets (Ahangar & Shah, 2017). It indicates that investors prefer companies that are able to maintain the optimal point of NWC because on the other hand, NWC can also reduce firm value (Altaf, 2018;Kokodey et al., 2020).
The purpose of this research was to determine the effect of IC and NWC on firm value. If NWC gives a higher result than IC, it can be seen that to value a company, investors still depend on the value of current assets. Conversely, if IC provides a higher result, it can be said that no matter how much NWC the company has, as long as there is IC in the company, investors will be interested in investing and ultimately increasing the firm value.
In contrast to previous studies, this research contributes to examining the effect of IC on firm value with the addition of NWC as another independent variable. NWC is added in this research because many investors are still considering the rate of return to be received rather than the investment made by the company on assets (Brito et al., 2014). The rate of return on investment, for example, can be seen if a company has a good level of liquidity to ensure that finances are in sound condition. This research aims to discover whether investors still refer to this assumption while still heeding the NWC in assessing companies or whether they have tried to pay attention to the contribution of IC in creating firm value. Previous research trends indicate that IC has an effect on firm value and performance (Anifowose et al., 2018;Bayraktaroglu et al., 2019;Dzenopoljac et al., 2017;Nimtrakoon, 2015;Sardo & Serrasqueiro, 2017;Smriti & Das, 2018;Soetanto & Liem, 2019;Vishnu & Gupta, 2014). In addition, there has been also further research on IC reporting and disclosure (Anifowose et al., 2017;Beretta et al., 2018;Camodeca et al., 2018;Duff, 2018;Mangena et al., 2016;Melloni, 2015;Terblanche & Villiers, 2018;Wang et al., 2016). However, as far as is known, there has been still no research that attempts to reveal the relationship of IC and NWC with firm value. This research contributes to efforts to confirm the validity of the RBV. The results of this research are also expected to give practical contribution as a basis for decision making on company policy regarding investment in IC and NWC so as to increase firm value.
This study is specified in the automotive and components industry from 2011 to 2018. Previous research has focused a lot on the banking industry (Meles et al., 2016;Ozkan et al., 2016;Singh et al., 2016), the pharmaceutical industry (Vishnu & Gupta, 2014), hospitality industry (Li & Liu, 2018), and the Information and Communication Technology industry (Ramadan et al., 2017). However, as far as is known, there has been still no specific research on IC that examines the automotive and components industry. The automotive and components industry is a high IC intensive industry (Woodcock & Whiting, 2009) that requires IC to support the development of innovation in firm value creation. Thus, the development of innovation and the acceleration of human resources are vital for the automotive industry (Caganova et al., 2019). The failure of automotive companies to invest in IC may lead to bankruptcies, as happened to Delphi Corp and General Motors Corp (Eades, 2017;Eades & Gupta, 2017). Therefore, this research was conducted to understand the differences in the contribution of IC and NWC to the firm value of the automotive and components industry.
Firm value refers to the success of management in conducting its business processes through optimal and efficient utilization of assets. In terms of increasing firm value, IC optimization can be one of the influencing factors (Nimtrakoon, 2015;Sardo & Serrasqueiro, 2017;Smriti & Das, 2018;Soetanto & Liem, 2019;Zéghal & Maaloul, 2010). RBV views that a company has a collection of resources that are useful for creating company competitive advantage (Barney, 1991). A resource will be considered increasingly valuable if the resource is rare, not easily imitable, and irreplaceable so that its existence is important to ensure a high level of competitiveness and performance (Bayraktaroglu et al., 2019).
Research conducted on high-tech companies in ASEAN found that the proportion of IC in each country was not much different and IC had a positive effect on firm value (Nimtrakoon, 2015). Meanwhile, research conducted on Indian and Western European companies indicated that IC had a significant effect on firm value and the component of IC that had a high contribution was HCE (Sardo & Serrasqueiro, 2017;Smriti & Das, 2018). Further research conducted on all non-financial companies in Indonesia and all companies in the UK showed that CEE was the only IC component that had an effect on market value in the high-tech industry group only (Soetanto & Liem, 2019;Zéghal & Maaloul, 2010). Based on previous theory and research the hypothesis that can be formulated is as follows:

H 1 : IC has a positive significant effect on firms' value
Company's assets consist of net working capital (NWC), fixed assets, and intangible assets (WIPO, 2010). Companies must be able to carefully differentiate their wealth to know which resources should be prioritized (Stewart & Ruckdeschel, 1998). NWC is internally funded resources, which is more flexible to obtain (Sugeng, 2017). Internal sources of funds are originated, established, and obtained by the company itself (Sugeng, 2017). In the context of the NWC, it is important for companies to pay attention to the investments they make so that the investments can help increase firm value. In addition, RBV also considers all company resources, including strategic resources, that help increase value and competitive advantage (Wernerfelt, 1984). Wasiuzzaman (2015) studied the influence of the NWC on firm value in Malaysia and discovered that investors regarded NWC investment as important in determining firm value. However, investors preferred limited investment in the NWC because its existence affected capital structure of a company. Furthermore, research conducted on non-financial micro-firms in the UK from 2004 to 2013 discovered that by observing the optimal level of investment in NWC, firm value would increase along with the level of NWC (Afrifa, 2016). In addition, companies that could manage NWC efficiently could increase firm value and reduce future financial constraints (Dhole et al., 2019). Further research conducted on the non-financial industry in India obtained a result in the form of an inverted U, which meant that the NWC would affect firm value at a certain point (Ahangar & Shah, 2017;Altaf & Ahmad, 2019). The results of previous research suggest that when a company finances its working capital needs with lower short-term debt, the performance will increase so that the firm value also increases (Altaf & Ahmad, 2019). Referring to previous research, it is indicated that the existence of the NWC is considered important by investors in assessing companies and thus, companies must be able to manage NWC efficiently so as not to reduce firm value. Thus, the proposed hypothesis is as follows: H 2 : NWC has a positive significant effect on firms' value.

METHODS
This research is an explanatory quantitative research, which explains the relationship between the independent variables (IC and NWC) and the dependent variable (firm value). This research specifically focused on 15 companies in the automotive and components industry that were listed on the Indonesia Stock Exchange from 2011 to 2018. The data were obtained via the Osiris database. The automotive and components industry were chosen because exports of Indonesian automotive products to the ASEAN region and China experienced an increase of 14.55% (Kemendag, 2016), which indicated an increase in the competitiveness of automotive products. In addition, the automotive and components industry are also included in the category of High IC Intensive Industries according to the Global Industry Classification Standards (Woodcock & Whiting, 2009). The Indonesian automotive and components industry had increased sales and production levels from 2015 to 2017 by occupying the highest sales position in ASEAN level (AAF, 2016(AAF, , 2018. This showed that the Indonesian automotive and components industry had high competitiveness and this competitiveness must be maintained for the next period. However, the Indonesian government changes the orientation of automotive products to electric-powered vehicles, and hence, investment in IC is very important for the automotive industry to be able to compete and carry out reforms faster than other industries (Caganova et al., 2019;Kemenperin, 2019). The research period was separated into two parts; the period 2011-2014 before the AEC, and the period 2015-2018 during the AEC (Kemenkeu, 2016). The separation of periods in this research was intended to determine whether there was a change in the IC level during the AEC era and before the AEC era. The number of samples in this study were 120 data. Data screening was carried out and showed that there were 12 missing data that were completely at random in 3 companies so that 24 data were deleted (Little's MCAR χ 2 , p = 0.288). The test for outliers was then conducted, and there were 4 outliers detected and deleted (Hair et al., 2019), and resulted in 92 remaining data.
The independent variables in this research include IC and NWC. The IC is measured using the MVAIC (Nimtrakoon, 2015;Ulum et  The next independent variable is Net Working Capital (NWC). NWC is capital derived from current assets to finance company operations. NWC is used to discover whether current assets of a company are able to meet the company's current liabilities if the assets are converted into cash. The NWC formula is as follows (Aktas et al., 2014;Afrifa, 2016) The dependent variable in this research is firm value as measured by using Tobin's Q to reflect firm value based on a market perspective, especially investor perspective (Wolfe & Aidar Sauaia, 2003). Companies with Q value of more than 1 have high potential for growth (Tobin, 1969) and good management performance in managing company assets (Lee & Tompkins, 1999). Tobin's Q was employed as a proxy for firm value as in previous research (Altaf & Ahmad, 2019;Anifowose et al., 2017;Berezinets et al., 2016;Sardo & Serrasqueiro, 2017). Tobin's Q is calculated as follows (Lindenberg & Ross, 1981 = Book value of total assets This research also control for other variables: 1) Age, the longer the companies sampled have been established, it has the more time to convert HC to SC (Nimtrakoon, 2015;Berraies, 2019). 2) Leverage is measured by the ratio of total debts to total assets (Altaf & Ahmad, 2019;Ginesti et al., 2018;Sardo & Serrasqueiro, 2017). = 5) AEC shows the shifting of economic system from traditional to global system. Therefore, it is important to know whether firms' value in Indonesia are also being affected by AEC or not. AEC is measured using dummy variable that is giving a score 1 for the period of AEC (2015-2018) and score 0 for the previous period before AEC (2011)(2012)(2013)(2014).
Regression model for panel data analysis was used in this study because the research data were a combination of time series and cross-sectional data. Regression model for panel data analysis was chosen because it is considered more appropriate than ordinary regression analysis which assumes that the relationship between variables is constant over time among companies (Widarjono, 2018). Panel data analysis assumes that the relationship between variables differs between time among companies (Widarjono, 2018). Panel data enable to control for heterogeneity between companies, identify undetectable effects from cross-sectional data, and improve measurement accuracy (Baltagi et al., 2013;Croissant & Millo, 2019;Hsiao, 2014). Regression model for panel data analysis was performed after the data screening to ascertain whether the data used were feasible for further testing (Hair et al., 2019). The classical assumption test that consists of normality, heteroscedasticity, multicollinearity, and autocorrelation tests had also been fulfilled in this research, and hence, regression model for panel data analysis was conducted. Regression model for panel data analysis was performed by selecting the best estimation model to be used in this research.
There are three estimation models in the panel data regression analysis, the common effect model (CEM), the fixed effect model (FEM), and the random effect model (REM). Table 1 shows the result of panel data estimation model selection test, which is the random effect model (REM). REM estimates panel data in which residuals may be related over time among firms (Widarjono, 2018). The difference in intercept in the random effect model is accommodated by each error of the companies.  Table 2 shows that the mean value of automotive companies in Indonesia during the 2011-2018 period was 0.97. The value was almost close to 1, which indicated that, on average, companies have not yet fully had high growth prospects and have not been able to fully manage their assets properly. This can be caused by the fact that Indonesia is a member of the AEC whereby competition in the automotive and components industry become increasingly fierce. The companies have to maintain their own firms' value to compete with the other global companies that entered Indonesia. In this case, companies that had not been able to compete in the free market properly might have a low firm value, which was indicated by a minimum value of 0.20. The mean of IC is 6.14 and the values among companies are quite different based on the standard deviation obtained. This result indicated that companies have tried to consider the use of their intangible assets rather than continuing to depend on their tangible assets. NWC had lower mean and standard deviation compared to IC while NWC among companies was not much different. In addition, NWC had the lowest value of -0.01, which meant that the quantity of current assets could not be used to cover current liabilities of the company.

RESULTS AND DISCUSSION
Leverage had a mean value of 0.47, showing that automotive and components companies had a low debt ratio because their total assets were much greater than the value of their liabilities. This also implies that companies had a lower risk of default. Growth, which is a measure of the sales growth of a company, had a maximum value of 0.82, which indicated that companies were able to increase sales by 80% of sales from the previous year. An increase in a company's sales can be an indication that the company is able to adapt to the free market, which is the impact of AEC.
However, companies that were unable to maintain their competitiveness were likely to experience a sales decline of up to 27% of sales from the previous year. This can be seen from the minimum growth value of automotive companies.
Profitability had a maximum value of 0.70 because companies were able to generate profits well by utilizing their assets. On the other hand, the lowest profitability value is -0.14 because the company could not sell their inventories, decline the sales while the expenses borne continued to increase, resulted in a negative profitability. In other words, if a company is able to implement a new strategy by utilizing IC, it is likely that the company's ability to generate profits can also increase. Table 3 shows the correlation among variables in this study. IC had no correlation with firm value, while NWC had a significant negative correlation with firm value. In addition, the leverage also had a significant positive correlation with firm value, while the other control variables had no correlation with firm value.   Table 4 shows that IC and NWC simultaneously had a significant effect on firms' value. The R-square shows a value of 0.205 which means that IC and NWC are able to explain 20,5% the firms' value variation. Table 4 also shows that X1 (IC) had no effect on firm value. Thus, H 1 , which states that IC has a positive effect on firm value, is rejected. Based on this result, the ownership of intellectual capital in a company had a very small contribution to firm value.
The results of this research failed to support the RBV, which views that a company with high IC will have a competitive advantage that has an impact on increasing firm value (Riahi-Belkaoui, 2003). The challenge for automotive companies lies in increasing innovation in business processes, technology, and project management, which require high capital. It causes the market to pay attention to the return on investment provided rather than the contribution of IC to firm value (Britto et al., 2014). In addition, automotive companies are likely to consider investment in other assets rather than in IC resources to create firm value. The results of this research support the research conducted by Britto et al. (2014) on real-estate companies in Brazil, Celenza et al. (2014) and Dzenopoljac et al. (2017). However, these results contradict research by Nimtrakoon (2015), Sardo et al. (2017), and Smriti & Das (2018).
The results of this research indicate that in assessing a company, investors have not been able to consider the contribution of IC because there are no regulations regarding IC disclosure in the financial statements. IC may not be recognized as an intangible asset because there are no valid and reliable measurements, and its existence cannot be fully disclosed in the financial statements. Because the disclosure of IC is non-mandatory (voluntary) (Schiemann et al., 2015). Therefore, investors cannot notice if there are changes in the efficiency of IC of a company (Soetanto & Liem, 2019). Investments in human capital, which is one of the components of IC, cannot be included in asset capitalization, even though the investment clearly contributes to the balance sheet (Kemenkeu, 2019). This is due to the fact that IC components are not fully disclosed in numerical data, making it difficult to know the exact halve of ICs of a company. Further, the result of statistical tests on the NWC showed a negative coefficient value (see Table 4), so H 2 , which states that NWC has a positive effect on firm value, is also rejected. The results of this research failed to support RBV that views company resources as strategic resources to increase firm value (Wernerfelt, 1984). These findings were in line with research conducted by Altaf (2018) and Kokodey et al. (2020), but different from research by Afrifa (2016) The results show that the automotive and components industry in Indonesia requires an efficient NWC management to increase the firms' value. An efficient NWC makes companies reduce their external fundings allocated on NWC (Kokodey, 2020). Investors have a negative perception when companies allocate the external fundings on NWC because the default risk will be higher (Altaf, 2019;Kokodey, 2020). In addition, the results of this research might also imply that abilities of managements to manage NWC optimally were still lacking. These results were in line with research conducted by Kokodey (2020). Therefore, companies need to apply strategic management to manage NWC efficiently because of its importance in maintaining the continuity of operational liquidity of automotive companies in the short term.
Research conducted by Afrifa (2016) (2019) did not fully discover that NWC had a positive effect on firm value. This previous research showed that the NWC would only have a positive effect on firm value to a certain extent or would form an inverted U. This is because the NWC that has exceeded a certain value tends to reduce firm value because it is not favored by investors. Management must also be careful in fulfilling their working capital needs because the more sources of funds are obtained from debt, the higher the interest will be paid and this affects liquidity level of a company. Therefore, management must be able to apply strategic management to manage NWC and maintain its value so that liquidity of company remains at a profitable level.

CONCLUSIONS
This research focuses on the influence of IC and NWC on firm value in the automotive and components industry in Indonesia from 2011 to 2018. The results showed that IC had no effect on firm value, while NWC had a negative effect on firm value. Both results of this research failed to support RBV, which states that a combination of resources can help increase firm value. It indicates that IC and NWC may not be the right combination of resources to help increase firm value. Based on the results of this research, company management should apply strategic management efficiently in managing IC and NWC so that those capitals can provide added value in the future.
Data in this research have an outlier that had been deleted and the data are not complete. Further research can use other treatments like trimming and winsorizing (Kwak & Kim, 2017).