As a result of the contributions to science and technology made by humankind, intellectual ability has given rise to knowledge economy that increases the importance of intellectual capital. The development of intellectual capital in corporate dimension provides a competitive advantage and increases the market value of the firms. This study aims to examine whether or not the intellectual capital calculated according to the intangible assets method is reflected in the values that investors accord to firms in the ISE (Istanbul Stock Exchange) banking sector. A new model is developed in this study in order to overcome the limitations of the existing model in the literature. The results suggest that the intellectual capital is highly positively correlated with the market values. The correlation is even stronger for the new model developed in this study. As the importance of the intellectual capital in banking sector is relatively higher than other sectors, firms should give importance to the management of intellectual capital which is not reflected by the traditional accounting method. The intellectual capital should be calculated and reported to the concerned parties.

Keywords: Intellectual capital, Intangible Assets Method, Market Value, Banks, ISE