Intellectual Capital, Firm’s Performance and Market Value: An Empirical Study of South Asian Emerging Economies
In today’s knowledge economy information acquisition, knowledge management and information technology (IT) are prime resources. Now organizations around globe are more dependent on de-materialized forms of assets rather on tangible ones. Intangible assets are the sole source of competitive edge in hi-tech, IT and services sector of businesses. Earlier, acquisition of assets to increase the asset base were considered “the market maker” and “influencer”, because of huge resources, now prospect is shifting from acquisition to ecient utilization-either its tangible or invisible asset. Mere ownership of intangible assets unable to make or create a difference in g-local markets, but efficient and effective utilization of these invisible resources matter. As Grant (1996) is of the view that the role of rms is knowledge application rather creation. Modern corporations in 21st century gain competitive edge through application of intellectual capital (Kaplan et al., 2004). Intellectual capital importance in current times can be discussed in paradigm of ‘knowledge asset’, which is essential factor of organization survival in competitive environment and borderless economies.
Keeping in view momentousness of intellectual capital (IC) for an organization in current belligerent environment of corporate arena, this study explore the linkage between intellectual capital and nancial performance of rm. The aim of the study is to identify treble role of IC in affecting current nancial performance, future performance and market value of rm. Research to explore such linkage is at nascent stage because of lack of standard mechanism to value IC. IC and performance, value nexus was investigated on three emerging economies of South Asia i.e. Bangladesh, India and Pakistan based on 100 rms each listed on respective stock exchange for the period 2009-2014. Literature documented divergent results regarding performance and IC nexus, which can be attributed to awed estimation because of inherent stability issues in time series cross section data according to Vogelsang (2012). This study, after diagnosing all apparent econometric issues, applied xed eect estimation with Driscoll and Kraay Standard error and panel corrected standard error (PCSE) estimation by following the guidelines of Reed and Ye (2011) and Moundigbaye et al. (2018).
Results revealed that human capital signicantly impact current performance of the rm, which testify the resource based view of rm by Barney (1991). On the other hand, when it was empirically analyzed to ascertain the role of IC on future performance, structural capital came out to be the most influencing factor in determining future direction of rm which affirmed the organizational learning theory of rm. In last, role of IC in emphasizing market value was ascertained. It is well documented in literature that human capital i.e. component of IC impacts market value more than any other factor. Results testify this assertion to which human capital theory support.
There are two prospective of this study i.e. theoretical and practical. Theoretically this study is in line with resource based view of rm and human capital theory. Practically, this study emphasized the role of those resources which are inside an organization and can be exploited to get sustainable advantage for long term. Due to such importance of IC in current systems of knowledge based business environment, this study also provide a sense for organizations to follow integrated reporting framework. Integrated reporting will repose the condence of not just shareholders but all the stakeholders on rms operation and will help to reduce the agency cost of rm. Secondly, this reporting will also help apex bodies to analyze the value addition in business through internal resources.