The problems and efficiency of investment in shares of companies with a high price-to-book velue ratio in the context of intellectual capital issue

Abstract

Purpose: The main aim of the article was to present the problems with application of the investment strategy based on companies with high P/BV ratio and to examine its efficiency, taking also into account the enterprises’ intellectual capital issue. Design/methodology/approach: The study was conducted with respect to companies listed on the main market of the Warsaw Stock Exchange in the period 2010–2022 and was based on data published by WSE, which for individual companies included in particular P/BV ratio, P/E ratio, share price, EPS and ROE. The study was conducted in four approaches: (i) growth companies identified only on the basis of P/BV ratio, (ii) growth companies with an additional result criterion, (iii) companies with an estimated high level of intellectual capital identified only on the basis of P/BV ratio and (iv) companies with an estimated high level of intellectual capital with an additional efficiency criterion. Findings: The study carried out in the field of analyzing the efficiency of investment strategies based on companies with high P/BV ratio values, including taking into account the issue of intellectual capital in the enterprise, allows to conclude that, at least from the point of view of the considered period of the study, this is an approach that allows "to overcome" market. At the same time, however, the results of the study showed that the use of easily accessible and popular additional criteria identifying companies in the portfolio does not necessarily provide an advantage over the broad market or the usual approach without additional criteria. This applies especially to a longer time horizon. Research limitations/implications: A certain limitation of the study and its results and final conclusions is the adopted, not very long, time frame (10 years), which was partly due to the availability of data and adaptation to the stock market cycle. Practical implications: Investment strategies based on companies with high price-to-book value ratios are not on the losing end when compared to the market index. Originality/value: The article presents an original approach to application of the investment strategy based on companies with high P/BV ratio and to examination its efficiency, taking also into account the enterprises’ intellectual capital issue. The article is addressed in particular to researchers dealing with the subject of valuation and measurement of intellectual capital in an enterprise, as well as analysts and stock market investors. Keywords: price-to-book value ratio, intellectual capital, growth stocks, investment strategy. Category of the paper: Research paper.