Influence of Intellectual Capital on Performance: An Analysis of IT and Pharmaceutical Firms

Abstract

Intellectual capital (IC) has gained recognition in enhancing the firms' value and gain a competitive advantage in the developed world. The present study examines the impact of IC on firms' financial performance. The study takes 48 companies for the time period of 10 years (2009-2018). The paper has used modified Pulic's value added intellectual coefficient (VAIC) as a proxy to measure IC and return on assets (ROA) to measure firms' financial performance. Granger causality between all the components of IC and ROA has been tested using Dumitrescu-Hurlin test. To analyse the impact, correlation and dynamic panel data regression technique has been applied. The result indicates that overall intellectual capital, human capital, relational capital, process capital, and financial capital have a significant impact on financial performance. On the other hand, innovation capital has no significant relationship with firms' financial performance. The results are helpful for managers, policymakers, government, and investors so that they can properly manage and regulate the IC of their organization.