Smriti 2018

Journal of Intellectual Capital
The impact of intellectual capital on firm performance: a study of Indian firms

listed in COSPI
Neha Smriti, Niladri Das,
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The impact of
The impact of intellectual capital IC on firm
on firm performance: a study of performance
Indian firms listed in COSPI

Neha Smriti and Niladri Das 935
Department of Management Studies,
Indian Institute of Technology (Indian School of Mines),
Dhanbad, Dhanbad, India
Abstract
Purpose – The purpose of this paper is to examine the effect of intellectual capital (IC) on financial
performance (FP) for Indian companies listed on the Centre for Monitoring Indian Economy Overall Share
Price Index (COSPI).
Design/methodology/approach – Hypotheses were developed according to theories and literature review.

Secondary data were collected from Indian companies listed on the COSPI between 2001 and 2016, and the
value-added intellectual coefficient (VAIC) of Pulic (2000) was used to measure IC and its components. A
dynamic system generalized method of moments (SGMM) estimator was employed to identify the variables
that significantly contribute to firm performance.
Findings – Indian listed firms appear to be performing well and efficiently utilizing their IC. Overall, human
capital had a major impact on firm productivity during the study period. Furthermore, the empirical analysis
showed that structural capital efficiency and capital employed efficiency were equally important contributors
to firm’s sales growth and market value. The growing importance of the contribution of IC to value creation
was consistently reflected in the FP of these Indian companies.
Practical implications – This study has robust theoretical grounds and employs a validated methodology.
The present study extends knowledge of IC among academicians and managers and highlights its
contribution to value creation. The findings may help stakeholders and policymakers in developing countries
properly reallocate intellectual resources.
Originality/value – This study is the first study to evaluate IC and its relationship with traditional
measures of firm performance among Indian listed firms using dynamic SGMM and VAIC models.
Keywords India, Intellectual capital, System GMM, Firm performance measures
Paper type Research paper
1. Introduction
The growth of knowledge-based, fast-changing and technologically advanced companies in
the world economy has increased the importance of intellectual capital (IC) (Petty and Guthrie,
2000; Cañibano et al., 2000). In this cutting-edge economy, tangible and intangible resources
are considered potential sources of strategic advantage (Ruta, 2009). The resource-based
theory of the firm and tangible and intangible resources are drawing significant interest in the
strategic management, economic and accounting literature based on the observed links
between intangible resources and performance measure. Thus, a direct impact of IC on firm
performance is expected (Pew Tan et al., 2008).
Researchers have linked the value of IC to firm performance (Bollen et al., 2005; Kamath,
2008; Dženopoljac et al., 2016). The measure of firm performance classified into three
categories, namely: operational performance, business performance and financial performance
(FP) (Bollen et al., 2005). This paper selects FP as a traditional measure of performance.
Researchers have used indicators like return on assets (ROA) (Chen et al., 2005, Nadeem et al.,
2017), asset turnover (Chen et al., 2005; Kamath, 2008) and sales growth (SG) (Chen et al., 2005;
Li and Zhao, 2018). Some researchers have also observed the effect of IC on market value Journal of Intellectual Capital
(Chen et al., 2005; Kamath, 2008; Sardo and Serrasqueiro, 2017). This study uses these four Vol. 19 No. 5, 2018
pp. 935-964
indicators as indicators of firm performance. Simple measures of financial indicators are © Emerald Publishing Limited
1469-1930
not adequate for stakeholder’s analysis of the performance of the knowledge-driven firm. DOI 10.1108/JIC-11-2017-0156
JIC Such stakeholders comprise governments, shareholders, suppliers, customers and employees
19,5 (Kamath, 2008). Traditional financial accounting measures ignore the role of human capital
(HC, a component of IC), which can mislead decision makers and stakeholders (Grant, 1996;
Stewart, 1997; Bontis, 2001). In response, firms have begun reporting intangibles due to their
growing importance in strategic competitive advantage. IC generally comprises of those
intangible resources that play an important role in the wealth – creation process of a firm,
936 including the sum of all skills and competencies possessed by employees that create value for
the firm (Mitchell Williams, 2001; Choo Huang et al., 2007; Smriti and Das, 2017).
In developing or emerging economies such as India, the reporting of IC and its disclosure
are in their infancy. The knowledge economy of India remains in a renovation phase, and
investment in knowledge infrastructure is required. The quality of human resources is a
primary concern in emerging countries because a knowledgeable, flexible and well-trained
workforce enhances the competitiveness of an organization. Accordingly, the Government of
India has recognized the expansion of intellectual resources, human resources and innovation
as a core scheme under the Ministry of Skill Development and Entrepreneurship (2015).
This paper investigates the effect of IC on business performance in the service and
manufacturing sectors in India. In 2015–2016, the Indian service market contributed

approximately 66.1 percent of gross value-added (VA) growth in India (IBEF Report, 2017a, b).
The Government of India aims to expand the manufacturing sector share of gross domestic
product from 16 to 25 percent and to create 100m new jobs by 2022. The manufacturing
component of the Index of Industrial Production (IIP) grew by 4.9 percent in FY17 (FY: Indian
financial year, April to March) and 1.8 percent in the first quarter of FY18.
In 2016–2017, the service sector was responsible for 60.7 percent of the foreign direct
investment equity inflows, highlighting the emergence of India as an attractive destination for
investments in manufacturing-oriented and service-oriented sectors. The manufacturing and
service sectors are among most capital and knowledge-intensive and fastest-growing sectors
in the Indian economy, and contribute a major portion of the country’s foreign exchange
earnings. Both types of industries require extremely specialized knowledge and skills and are
subject to organizational implicit knowledge and capabilities (Sharabati et al., 2010).
The endurance of these industries requires significant volumes of human resources and
physical capital (PC) for its endurance.
The study addresses the gap in the literature by exploring the relationships between IC and
traditional measures of corporate performance in the service and manufacturing industries in
India. The findings of this study will be useful for domestic manufacturing and service-oriented
industries seeking to measure IC performance and will also offer insights on critical issues that
demand quick consideration to enhance IC performance. Firms can identify whether IC truly
defines their performance and their resource reallocation decisions. Furthermore, stakeholders
can obtain insights on the factors driving the performance of the firms. This study tries to
extend the IC literature and justifies the link between IC and firm FP to ensure that the
inclusion of IC disclosures on balance sheets by accounting managers is fruitful.
The paper is designed into following parts. Section 2 deals with the literature review
related to IC, measurement of firm performance and formulation of the hypotheses. Section 3
discusses the variables and research methodology used. Sections 4 and 5 deal with the
findings of the empirical analysis and discussion of the results, respectively, followed by
limitations and future implications in the last section.
2. Background
2.1 Review of the IC measurement and its sub-components
The total of hidden values of the firm also referred as IC (Sardo and Serrasqueiro,
2017) is responsible for the increase in the market value of stock of many firms in
comparison to the replacement cost of their tangible resources (Vishnu and Gupta, 2014).
Peteraf and Barney (2003) argued that firm’s resource-based view emphasizes over The impact of
sustaining competitive strategies by utilizing the resources present inside an organization. IC on firm
Resources must possess certain characteristics like they should be unique, inimitable and performance
cannot be replaced and can be observed in the form of employee’s skills and experience
gained over time and the organizational process. Such internal resources have the capability
of generating wealth and are perceived as intangible assets or IC. The significance of
intangible assets in firm performance and market value is increasing rapidly (Dženopoljac 937
et al., 2016). Despite numerous efforts to provide clear links between IC and firm financial
indicators, the effects of IC on firm performance remain unclear (Dženopoljac et al., 2016).
This lack of clarity may reflect the use of different features of intellectual assets and the
varying relationships between them.
Researchers across the globe have defined and classified IC in their own way (Stewart, 1997).
IC is described as a reservoir of experience and skills gained by the employees, the relationship
with the customer, which gives competitive verge in the market over its competitors
(Edvinsson and Malone, 1997). Moreover, it assures perspective profit in the absence of tangible
assets (Lev, 2004).
Sveiby (1997) classified IC into three major components – structural capital (SC), customer
or PC and HC. Bontis (1996) subsequently replaced customer capital with relational capital,
and this change has been adopted by other researchers (Mouritsen et al., 2001; Kamath, 2008;
Nadeem et al., 2017).
HC is the amalgamation of skills, capabilities, experience and expertise of employees
acquired through their experience, and training (Ahangar, 2011). The experience gained by
an employee is carried with him when he changes jobs (Spender, 1996; Roos et al., 1997).
According to the resource-based view, Abeysekera (2010) claimed that the performance of a
firm is associated with the proper utilization of human resources in all potential and legal
ways. Employees are perceived as assets of the firm, and hence HC is a vital component of
firm value creation. The service and manufacturing sectors demand complex knowledge to
acquire a competitive edge over other sectors.
SC also known as the organization capital includes the organization and its system,
structure and processes, which comprise factors such as databases, management processes,
organizational plans and corporate approaches (Roos et al., 1997; Nonaka, 1994;
Szulanski, 2002) and help in supporting their employee’s performance and business
performance (Bontis, 1998; Bollen et al., 2005). Njuguna (2009) argued that based on
organizational learning theory, firms can acquire long-term wealth and sustainability by
following continuous learning. SC can be classified into two types. The first includes
knowledge innovation, such as databases and intellectual assets such as patents, copyrights
and trade and service marks. The second type encompasses infrastructural resources
involved in organizational activities. Thus, SC reflects innovations in products and services in
response to market demands (Goh, 2003; Keong Choong, 2008; Nadeem et al., 2017).
Relational capital refers to all intellectual assets involved in managing and regulating the
external relationships of a firm, including organizational relationships with suppliers,
customers, stakeholders, marketing channels and the knowledge governing these
associations (Bontis, 2001; Bollen et al., 2005; Tether and Tajar, 2008; Meles et al., 2016).
It is also referred as the relationships between suppliers and customers (Sveiby, 1997).
Measuring IC successfully in monetary terms is a challenge. Existing accounting
standards followed across the globe do not mandate IC disclosure. IC disclosure also
remains voluntary according to Indian Accounting Standards (Ind AS) 28. The conception
of IC is still new in developing economies like India (Vishnu and Gupta, 2014). Researchers
have developed the method to measure IC, among which the most prominent ones are the
Skandia Navigator developed by Edvinsson and Malone (1997), Sveiby’s (1997) the
Intangible Assets Monitor, the balanced scorecard approach by Kaplan and Norton (1996),
JIC direct intellectual capital methods, market capitalization methods, and, most recently,
19,5 Pulic’s (2000) value-added intellectual coefficient (VAIC). Clarke et al. (2011) stated that the
complicity appears while measuring IC such as the unavailability of needed info to the
intruders. Even if intruders get the information, its rationality and validity are again
questionable. Further, conversion of this information into financial term is difficult.
Researchers have applied the VAIC model to assess the impact of IC and its dimensions on
938 the financial and economic performance of firms as it employs the quantitative, publically
accessible, carefully scrutinized information (Meles et al., 2016).
Considering shareholder’s view, this model evaluates the efficiency of the firm’s
intangible and tangible assets to embellish shareholder’s worth (Meles et al., 2016).
This model is discussed in details in Section 3.2 under subsection, independent variable.
2.2 IC Literature review

For South African listed firms, Firer and Mitchell Williams (2003) observed a significant
influence of IC on firm performance as well as a positive impact of capital employed efficiency
(CEE) on a firm’s market value. Using the same model, Pal and Soriya (2012) conducted a
comparative analysis of the pharmaceutical and textile industries and showed that the
profitability of these industries was positively correlated with IC; by contrast, no significant
correlations of IC with productivity and market valuation were observed.
A study conducted by Yalama and Coskun (2007) to examine the influence of IC and their
sub-components on the profitability of Istanbul banks and observed a significant role of IC
compared to CEE. Mavridis (2004) used the same model to conclude that HC is having the
highest degree of correlation with the performance indicator of the banks in Japan. In a
study of the influence of VAIC on FP, Ismail and Karem (2011) found significant correlations
of CEE and HCE with bank performance in Bahrain, although their analysis failed to note
any significant correlation between SCE and corporate performance.
Appuhami (2007) obtained similar results for companies listed on Thailand’s stock
market using VAIC as the proxy of IC. This empirical research supports the resource-
based theory and shows that IC is important in the creation of value and strategic asset
management. Kamath (2008) found that HC has a major impact only on ROA in the Indian
pharmaceutical sector, with no significant relationships of IC with productivity and
market value. In contrast to these results, Chan (2009a, b) found no significant links
between IC and productivity, profitability and market valuation among listed firms on the
Hong Kong Stock Exchange. Instead, physical assets were identified as the most
important component in improving firm productivity, profitability and market valuation.
Vishnu and Gupta (2014) found similar evidence in an analysis of the Indian
pharmaceutical industry, which showed that all components of VAIC except CEE
significantly and positively influenced corporate performance as measured by ROA and
return on sales. These findings provide insights on the Indian knowledge-based sector like
pharmaceutical, where stakeholders still perceive firm performance in terms of tangible
assets rather than intangible assets.
In a study of the impact of IC on profitability, revenue growth and employee productivity
in the manufacturing industry in Thailand, Phusavat et al. (2011) observed significant and
positive contribution of IC compared to firm performance. Consistent results were obtained
by Nimtrakoon (2015) for ASEAN countries.
Further, unfolding the influence of IC on FP and ownership concentration and owner
involvement of non-financial European registered firms, Sardo and Serrasqueiro (2017)
observed that IC is an important tool to boost firm’s FP and market value. Among VAIC
components, the greatest contributors to firm profit were human capital efficiency (HCE)
and CEE. By contrast, HCE and structural capital efficiency (SCE) were the greatest
contributors to firm market value.
2.3 Theories related to IC The impact of
Different theories, put forward by some theorist, made the researchers across the IC on firm
globe realize the importance of IC in enhancing firm performance. One such theory is performance
resource-based view put forward by Wernerfelt (1984), which stated that resources are the
physical and intangible resources which belong to the firm (as shown in Table I).
This theory focuses over-analysis of the heterogeneous, imitable and immobile
resources present with the firm. Supporting this view, Nadeem et al. (2017) found a 939
positive significant relationship between firm performance and IC except for market value
in five emerging countries, namely BRICS. Thus, IC and PC are perceived as a
proxy of resource-based view (Nadeem et al., 2017). Accordingly, few more theories which
identify the exclusive nature of IC and its components in increasing firm
strategic management and performance were established. One such theory is
organizational learning theory (Njuguna, 2009) which recognizes the process of
continuous learning inside the organization and brings innovation in product and
process. The insight of the external environment such as the change in the
customer demand, their preferences about any product or services can be understood
well. Further, linking this theory with the SC of the firm, Nadeem et al. (2017) supported
Goh’s (2003) argument that these need can be met with the investment in the research and
development to safeguard modernization. The third theory is resource dependency theory
(Salancik and Pfeffer, 1978), which considers the organization as an open system, which
relies upon the opportunities in the external environment. Thus to understand
the performance of an organization, one should realize the ecological surrounding of the
organization. Hence, linking this view with the HC component of IC, the relationship with
the external environment can be efficiently maintained by the internal resources of the
firm like human resources, process learning of these organizations (Abeysekera, 2010;
Nadeem et al., 2017).
2.4 Hypothesis development

IC is non-monetary and intangible in nature and adds immensely to value creation
(Bontis, 2004; Youndt et al., 2004; Vishnu and Gupta, 2014). IC enhances firm
Firms in the Less: observation with incomplete or missing Final

Industry database data or without paired firm sample
Food and agro-based product 140 50 93

Drug and pharmaceutical 107 31 76
Textile 178 75 103
Health services 16 8 8
Transport services 39 18 21
Information technology 102 42 60
Communication 13 5 8
Electricity 21 14 7
Metal and metal products 152 85 67
Hotel and tourism 33 7 26
Constructional material 77 16 61
Business services and consultancy 43 31 11
Recreational services 39 27 12
Consumer goods 69 28 41 Table I.
Machinery 160 42 120 Sample selection
Total 1,189 479 710 process based on the
Source: CMIE Prowess Database data availability
JIC performance irrespective of firm size and geographic location (Nadeem et al., 2017). VAIC
19,5 is proxy for value creation efficiency of IC of the firm and is the summary of the
value-added efficiency of HCHC, SC and PC. It is the indicator of performance and is
directly proportional to the efficiency of the company (Chen Goh, 2005). In other
words, it can be said that increase in VAIC results in the increase in firm efficiency and
vice versa. Using Taiwanese 4,254 firm-year observation, Chen et al. (2005) found
940 that IC positively influenced profitability, market value, productivity and SG.
In a study by Nimtrakoon (2015), reported no association between IC and market value
in ASEAN countries, except in Thailand. Nadeem et al. (2017) supported this
positive relation in BRICS listed firms using ROA, ATO, ROE and market value as firm
performance indicators (Pulic, 2000). VAIC is the proxy for IC. Simultaneously, we
expect a positive significant impact of VAIC on Indian service and manufacturing firm
using productivity (ATO), profitability (ROA), market value (Tobin’s Q) and SG.
Hence, we propose:
H1a. IC performance positively affects firm productivity.
H1b. IC performance positively affects firm profitability.

H1c. IC performance positively affects firm SG.
H1d. IC performance positively affects firm market value.
VAIC creates IC efficiency by employing physical and financial resources of the firm. Pulic
argues that without PC, IC resources cannot perform well. Nahapiet and Ghoshal (1998)
stated that customer capital includes the firm’s relationships with external environment or
with the customers. This was earlier included in the SC by Edvinsson and Malone (1997)
and signifies relational capital as it covers all the relations with external shareholders
including customer (Ramírez et al., 2017). CEE is a proxy for customer or physical,
financial capital dimension of IC and is discussed in detail in independent variable section.
In a study on Taiwanese listed firms, Chen et al. (2005) reported a highly significant
correlation of PC with SG, ROA, assets turnover (ATO) and market value. The PC was
found to consistently influence the asset turnover ratio, employee productivity and
profitability of Indonesian bank (Ang and Hatane, 2014). Nadeem et al. (2017), while
studying BRICS economies report, supported this positive and significant correlation
between physical, financial capital and profitability, productivity and market valuation of
the firm. Based on these observations, we expect that CEE, in our study, influences firm’s
profitability, productivity, Tobin’s q and SG positively and significantly. Thus,
we propose:
H2a. CEE positively affects firm productivity.
H2b. CEE positively affects firm profitability.
H2c. CEE positively affects firm SG.
H2d. CEE positively affects firm market value.
SC includes the organization and its system, structure and processes, which comprise
factors such as databases, management processes, organizational plans and corporate
approaches (Roos et al., 1997; Nonaka, 1994; Szulanski, 2002) and help in supporting their
employee’s performance and business performance (Bontis, 1998; Bollen et al., 2005). SCE
is a proxy for the value-added efficiency of SC (Pulic, 2000; Lee et al., 2015). Moreover, as
per the organizational learning theory, the firm can build long-term sustainability by
continuous upgrading of knowledge, which, in turn, contributes to innovation which helps
in meeting the market demand (Goh, 2003). Nadeem et al. (2017) in their study observed
that SC has a positive impact on profitability and market value. Li and Zhao (2018) The impact of
observed a significant positive relationship between SCE and SG in both labor-intensive IC on firm
and capital-intensive Chinese firms. Based on this, the study considers that SC is performance
associated with the better firm performance. Hence, based on the above discussion, the
following relationship is expected:
H3a. SCE positively affects firm productivity.
H3b. SCE positively affects firm profitability.
941
H3c. SCE positively affects firm SG.
H3d. SCE positively affects firm market value.
HC refers to the professional skills, competencies and experience possessed by employees.
Although HC is a central element of crafting IC, HC is unique in that it may be lost when
workers leave the firm (Bontis, 1999). HCE is an indicator for measuring the value-added
efficiency by HC (Pulic, 2000; Lee et al., 2015). Chen Goh (2005) evidenced that HCE is
responsible for creating more values in Malaysian bank. A similar result was observed by
Meles et al. (2016) in a study conducted on US commercial banks. Their observation

confirmed were similar to the findings of El-Bannany (2008), who confirmed that human
resource is an important contributor to the banking industry. Chen et al. (2005) reported a
highly significant correlation between HC and SG, ROA, ATO and market value of
Taiwanese firm. Sardo and Serrasqueiro (2017) found that HCE has a notable effect on
market value in listed western-European firms. Based on these observations, our study
expects the following relation:
H4a. HCE positively affects firm productivity.
H4b. HCE positively affects firm profitability
H4c. HCE positively affects firm SG.
H4d. HCE positively affects firm market value.
3. Sample selection and research methodology

3.1 Database
The data required for this paper were manually selected from the electronic database
“PROWESS,” which is maintained by the Centre for Monitoring Indian Economy (CMIE).
All relevant variables were readily available in this database.
The annual data for all firms in 15 industries included in the CMIE Overall
Share Price Index (COSPI) were obtained from the CMIE database for 2001–2016.
COSPI is a set of 2,500 registered Indian companies in different sectors that trade on a
minimum of 66 percent of trading days. As shown in Table I, the 15 industries
included production-oriented and service-oriented industries. Bell et al. (2004)
supported the view of Coviello (1994) and stated that any firm which uses the
sophisticated scientific high-added value in their product and process are
knowledge-intensive firms, hence production-oriented firms are also a part of
knowledge-intensive firms. Bell et al. (2004) further stated that capital intensive are
those firms which depend greatly on their manufacturing skills. These industries are
capital intensive and knowledge intensive in nature and thus are ideal segments for
analyses of IC performance (Sharabati et al., 2010).
Firms with missing data for more than three years were excluded. Thus, the final sample
consisted of 710 publicly listed firms (see Table I). We used panel data in this study. Panel
data provide a greater variation of data, in-depth information and a higher degree of
JIC freedom of data by merging cross-sectional observations with time series. The use
19,5 of repeated cross-sections of observations in panel data analysis enables the measurement
of the impact of dynamics of change that cannot be simply observed in pure cross-section
or pure time-series data. Thus, panel data analysis is preferred above cross-section or
time-series data.
The 16-year period was selected because system generalized method of moments
942 (SGMM) may produce biased results when the data set is too small (Wintoki et al., 2012)
and because most research on IC has been performed from the year 2000 onward
(Firer and Mitchell Williams, 2003; Chan, 2009a, b; Sardo and Serrasqueiro, 2017).
3.2 Variable measurement

The variables used in the analysis can be broadly classified into three categories: dependent,
control and independent variables. Their measurement is shown in Table II.
Dependent variables. Four performance indicators are taken as the dependent variables.
They are:
(1) ROA indicates the competence of a firm in utilizing total assets and shows the
profitability of a firm (Firer and Mitchell Williams, 2003; Kamath, 2008; Sardo and
Serrasqueiro, 2017).
(2) ATO is the ratio of total revenue to the book value of total assets and measures firm
productivity (Kamath, 2008; Calisir et al., 2010; Nadeem et al., 2017).
Variables Measurement References
Dependent variable
ATO (asset turnover ratio) Total revenue/total assets (natural Kamath (2008), Calisir et al. (2010)
logged)
ROA (return on assets) Operating income/total assets Firer and Mitchell Williams (2003),
(natural logged) Kamath (2008), Sardo and
Serrasqueiro (2017)
Tobin’s Q (market value) (Market value of equity + book Sarkar and Sarkar (2000), Sardo and
value of debt)/Total sales (natural Serrasqueiro (2017)
logged)
Sales growth (SG) (Current year’s sales/last year’s Chen et al. (2005), María Díez et al. (2010),
sales)−1 × 100 (natural logged) Kamath (2015), Li and Zhao (2018)
Control variable
Size Sales ¼ Log(sales) Riahi-Belkaoui (2003)
Physical capacity (PC) Fixed assets/Total assets (natural Pal and Soriya (2012)
logged)
Independent variables
VA O+P+D+A Pulic (2000, 2004)
HC Salaries and wages of the
employees in the firm
SC VA – HC
CE Total asset – intangible asset
HCE (human capital efficiency) VA/HC (natural logged)
SCE (structural capital efficiency) SC/VA
CEE(capital employed efficiency) VA/Net worth (natural logged)
Table II.
Definition of variables VAIC (value-added intellectual HCE + SCE + CEE
used and their capital efficiency)
measurement Source: Author’s Compilation
(3) SG measures the deviations in a firm’s sales and typically indicates a firm’s growth The impact of
probability (Chen et al., 2005; María Díez et al., 2010; Kamath, 2015; Li and Zhao, 2018). IC on firm
(4) Tobin’s Q is taken as a proxy for the market value of a firm (Sarkar and Sarkar, performance
2000; Sardo and Serrasqueiro, 2017).
Control variables. Researchers have used physical capacity, firm size, age and industry
dummy as control variables. Since our study consists of firms from several different
industries, hence we will use industry dummy, firm size and physical capacity as the control
943
variable. Their measurement is shown in Table II:
• PC intensity regulates the effect of fixed assets on firm performance (Pal and
Soriya, 2012).
• Natural log (Sales) is used as an indicator of firm size.
• MAN is assigned 1 if the firm belongs to the manufacturing industry and else 0.
This dummy variable examines sector-specific risk.
• SER is assigned 1 if the firm belongs to the service industry and else 0. This dummy
variable examines sector-specific risk.
3.3 Independent variables: VAIC framework

Pulic’s VAIC (2000, 2004) is employed to measure firm IC. VAIC uses financial report data
and estimates the total efficiency of the IC and asset value of a company. This model is
important for the decision making by the management. VAIC has been used in a number
of studies as an indicator for VA by IC coefficient (Mavridis, 2004; Kamath, 2008; Joshi
et al., 2013; Purohit and Tondon, 2015). The audited financial data are used and the values
obtained are easy to use and compare cross-sectional firm data. Further, it can be used by
the stakeholders to get an insight into the intangible assets of the firm. In Pulic’s method,
VAIC is the total of CEE, SCE and HCE. The calculation of VAIC is a three-step process.
The first step is to estimate the VA by a firm.VA is calculated to determine the effective
usage of IC in a firm, thus the firm can classify the extra value created by the resources.
The intention is to generate the maximum value or worth by using the limited of tangible
and intangible resources. It is represented in Table II. VA is calculated as follows:
VA ¼ D þAþOPþEC; (1)
where D is depreciation, A is amortization, OP is operating profits and EC is total

employee expenses. The second step is to calculate the IC efficiency, which is the summary
of HCE and SCE:
ICE ¼ HCEþSCE: (2)
Following Ramírez et al. (2017), HCE is an indicator of the VA efficiency

of the HC. It measures the relation between VA and HC, which, in turn, denotes the
quantity of VA produced on an investment of one monetary unit on the employees and is
determined as:
VA=HC ¼ HCE: (3)
HC is wages and salaries of employees. Categorizing firm resources into HC and capital
employed which are a proxy for tangible or physical and intangible resources, respectively.
JIC This is in line with the resource-based view of the firm which states that firm internal
19,5 resources are the key to firm performance and competitiveness (Riahi-Belkaoui, 2003;
Chen et al., 2005). SC is the difference among VA and HC. SCE evaluates the VA efficiency of
SC. It is determined as given below:
SC=VA ¼ SCE: (4)
944 The third part of the model includes calculation of the efficiency of firm’s PC. CEE evaluates
the relation between VA and CE. Following Pulic (2000) and Chen et al. (2005), CEE, as
shown in Equation (4), evaluates the contribution of CE is the proxy for the VA efficiency of
capital employed, is defined as follows:
VA=CE ¼ CEE; (5)
where CE is capital employed in the firm in past and is calculated as the difference between
total assets and intangible assets. Hence, it can be said that VAIC method emphases over
defining the relative input of IC, physical and financial capital to the creation of value:
VAIC ¼ ICE þCEE; (6)

or:
VAIC ¼ SCE þHCE þCEE:
Drawbacks of VAIC model. In spite of the advantages, VAIC has been criticized by few
researchers (Ståhle et al., 2011; Maditinos et al., 2011).
Maditinos et al. (2011) questioned the reliability of VAIC model and argued that this
method overlooks the risk and negative operating profit or book value of the firm, which
results in the decrease in output values than the input value.
Ståhle et al. (2011) observed that VAIC model does not include the firm’s relational
assets and innovation capability. VAIC measures only the operational efficiency of the
firm. For instance, this method considers employees’ salaries and wages as HC and
ignores the knowledge and skills acquired with experience or the investment in training,
motivation of the employees. Moreover, VA is the summary of depreciation (D),
amortization (A), operating profit (OP) and employee cost (EC). Amortization and
depreciation do not depend on the value generated by the firm. Similarly, SC does not
cover relational capital and is the determined by the difference between VA and HC.
Computation of VAIC method does not include relational capital. Further, the HCE is
derived by dividing VA by HC. This signifies that lesser HC value will give higher HCE.
Nimtrakoon (2015) attempted to overcome the limitation by modifying this model by
including market cost as relational capital.
However, in spite of the shortcomings, this model is broadly acknowledged among the
practitioners and researchers as an indicator for calculating IC and its components
(Clarke et al., 2011; Amin et al., 2014; Kamath, 2015; Dženopoljac et al., 2016; Nadeem et al.,
2017). This model easily computes the efficiency of IC and also enables the user to
comparative analysis across different sectors and countries (Young et al., 2009).
Department of Business, Innovation and Skills situated in the UK employs this an
indicator of IC (Zeghal and Maaloul, 2010). Hence, this paper too uses VAIC model to
analyze IC (Figure 1).
3.4 Estimation method

Focusing on the objective of the paper to evaluate the link between IC, its components and
performance indicators, we used the dynamic panel regression. Because the firms in our study
Structural Capital = The impact of
Value Added – Human Capital
IC on firm
performance
(Value Added/Capital Employed) (Value Added/Human Capital) (Structural Capital/Value Added)
Capital Employed Efficiency (CEE) Human Capital Efficiency (HCE) Structural Capital Efficiency (SCE)
945
Intellectual Capital Efficiency = HCE + SCE
Figure 1.
Showing the pictorial
VAIC (Intellectual Capital) = CEE + HCE + SCE representation of
VAIC model
Source: Author’s compilation
had missing values for some variables, our data set can be considered unbalanced panel data.
This data set allowed us to study the firm performance and IC relationship for several firms
over several consecutive years. Our regression models can be represented as follows.
Model 1:
ATOi;t ¼ pþb1 ATOi;t1 þb2 HCEi þb3 SCEi;t þb4 CEEi þb5 HCEi;t1 þ b6 SCEi;t1
þb7 CEEi;t1 þb8 MAN þb9 SERþb10 PCi;t þb11 SIZEi þZi þei;t ;
Model 2:
ATOi;t ¼ p þb1 ATOi;t1 þb2 VAICi;t þb3 SERþb4 MAN þb5 PCi;t þb6 SIZEi;t1 þZi þei;t ;
Model 3:
ROAi;t ¼ pþb1 ROAi;t1 þb2 HCEi þb3 SCEi;t þb4 CEEi þb5 HCEi;t1 þb6 SCEi;t1
þb7 CEEi;t1 þb8 MAN þb9 SERþb10 PCi;t þb11 SIZEi þZi þei;t ;
Model 4:
ROAi;t ¼ p þb1 ROAi;t1 þb2 VAICi;t þb3 SERþb4 MAN þb5 PCi;t þb6 SIZEi;t1 þZi þei;t ;
Model 5:
Tobin’s Qi;t ¼ pþb1 Tobin’sQi;t1 þb2 HCEi þb3 SCEi;t þb4 CEEi þb5 HCEi;t1 þb6 SCEi;t1
þ b7 CEEi;t1 þb8 MAN þ b9 SERþ b10 PCi;t þ b11 SIZEi þ Zi þ ei;t ;

Model 6:
Tobin’s Qi;t ¼ pþb1 Tobin’s Qi;t1 þb2 VAICi;t þb3 SERþb4 MAN þb5 PCi;t
þb6 SIZEi;t1 þZi þei;t ;
JIC Model 7:
19,5 SGi;t ¼ pþb1 SGi;t1 þb2 HCEi þb3 SCEi;t þb4 CEEi þb5 HCEi;t1 þb6 SCEi;t1
þb7 CEEi;t1 þb8 MAN þb9 SER þb10 PCi;t þb11 SIZEi þZi þei;t ;
Model 8:
946 SGi;t ¼ pþb1 SGi;t1 þb2 VAICi;t þb3 SERþb4 MAN þb5 PCi;t þb6 SIZEi;t1 þZi þei;t ;
Model 9:
VAICi;t ¼ p or aþb1 VAICi;t1 þb2 ROAi;t þb3 MAN þb4 SER
þb5 PCi;t þb6 SIZEi;t þZi þei;t ;
where the dependent variables are ATOi,t is the productivity, ROAi,t is the profitability,
Tobin’s Qi,t is firms’ market value and SGi,t is the SG of the firm of the current year.
Following, the independent variables of firm performance indicators of the previous year
are: ATOi,t−1, ROAi,t−1, Tobin’s Qi,t−1, SGi,t−1, HCEi,t−1, SCEi,t−1, CEEi,t−1 and VAICi,t, HCEi,t,
SCEi,t and CEEi,t of the current year. MAN and SER represent the product-oriented and
service-oriented industry dummy variables. ηi are un-observable time-invariant firm effects
and εi,t are error term is i, at current time period t.
4. Empirical results
4.1 Descriptive statistics
The mean, standard deviation, median, minimum and maximum values of all variables are
shown in Table III. The aggregate value of ROA was 4.929 showing the highest value
among the dependent variables, indicating that the firms earned huge profits, followed by
Tobin’s Q. With the mean value of 2.807, Tobin’s Q reflects that firm’s market value is
Variables Observations Mean SD Minimum Maximum
ATO 10,791 0.7720611 1.005562 −4.60517 10.1536

ROA 11,360 4.929777 9.961 −166.67 115.83
SG 9,963 1.585713 1.150871 −4.60517 4.75212
Tobin’s Q 9,212 2.807047 1.181495 −4.60517 11.7672
HCE 11,154 1.338691 1.041567 −7.04131 9.1598
CEE 10,720 −0.5548764 1.248919 −8.91767 9.12726
SCE 10,757 −0.3444109 0.5876456 −7.52394 5.77702
VAIC 10,923 1.771849 0.8974727 −5.03288 9.82034
PC 8,271 0.4762724 1.057563 −3.91202 8.06271
Firm Size 11,297 −1.161308 1.390271 −4.60517 13.2339
SER 11,360 0.2014085 0.4010701 0 1
MAN 11,360 0.0098592 0.0988069 0 1
NOE 9,723 2,111.397 7,562.542 −28,285.2 156,721
AP 11,331 1,015.927 6,184.727 −119,062.3 126,930
REV 11,312 9,809.148 36,206.62 4.3 540,340
Notes: In this table, ATO stands for asset turnover ratio, ROA stands for return on assets, SG for sales
growth, Tobin’s Q as market value, HCE as value-added efficiency of human capital, CEE as capital employed
efficiency, SCE as value added by efficiency of structural capital, VAIC as the value added by the intellectual
Table III. coefficient. PC stands for physical capacity, SER stands for dummy of the service sector, MAN stands for
Descriptive statistics dummy of the manufacturing sector, AP stands for average profit, REV for revenue and NOE stands for the
of the variables for number of employees. SD stands for standard deviation
the firms Source: Author’s compilation
greater than its book value. SG shows mean value of 1.587 and low standard deviation value The impact of
of 1.150 indicates that low variation in SG among firms. ATO had the lowest mean value, IC on firm
suggesting that the firms faced difficulties in generating optimum productivity. performance
The sample firms created more value from HCE, which has a value of 1.338, than from
CEE (−0.558) and SCE (−0.344). The sum of mean values of HCE and SCE also known as IC
efficiency is 0.994, which is more than the mean value of physical assets, i.e. CEE (−0.558),
indicating that the firms created more value from the intangible components of VAIC than 947
from the physical and financial components.
The aggregate value of VAIC is 1.771, which indicates that the firm produced an average
value of INR1.771 for each one INR employed. This finding is in line with the prior
researcher (Firer and Mitchell Williams, 2003) indicating that more wealth is created by
intellectual resources. IC plays an important role and is a significant contributor in creating
wealth. The mean value for the average profit of the firm is 1,015.927. The mean value of
revenue is 9,809.148 and the firm has the maximum of 1,567,121 number of employees.
As the firms belong to different industries, descriptive statistics of the variables of each
industry are shown in Table IV.
Among the components of VAIC, the industries with highest mean value are recreational
services, electricity and construction material. Industries with lowest mean HCE value are
health services. Metal and metals show the highest mean value of CEE and construction
materials show the lowest mean value. Regarding the mean value of SCE, machinery forms
the highest and consumer goods have lowest mean value. Industries with highest mean
value for VAIC are business consultancies and metal and metals. Electricity and information
technology are evidenced to have highest and lowest mean value of ROA, respectively.
4.2 Correlation matrix

Table V shows the outcome of correlation analysis of the Indian listed firms. The dependent
and independent variables were positively and significantly correlated with each other. SG
showed a negative correlation with VAIC of the current and previous years. Moreover, the
insignificant relationship between SG and SCE and HCE (both current year and previous
year) except CEE of previous year showed that the previous year tangible resources of the
firm affect the present growth of the firm. Thus, CEE had a long-term effect on firm growth.
In contrast to this Tobin’s Q (previous and present year) shows a significant but negative
correlation with CEE (previous and present year), suggesting that CEE has a negative influence
on the company’s market value in the long run. Among all components of IC, CEE exhibits
significantly positive and highest correlation with the dependent variables, ATO of the present
(p-value of CEEi,t ¼ 0.424, CEEi,t−1 ¼ 0.370) and previous year ( p-value of CEEi,t ¼ 0.343,
CEEi,t 1 ¼ 0.430). Thus, CEE of a firm contributed more than its IC efficiency, i.e., HCE and
SCE to firm productivity and market value in the study sample. Hence, the roles of physical or
financial capital as major contributors to firm value creation cannot be ruled out.
Tobin’s Q (present year) was significantly correlated with VAIC (p-value ¼ 0.043) and
HCE (p-value ¼ 0.069) of the present year, suggesting that the market value of the firms was
positively associated with corporate IC and HCE. This outcome is similar to the findings of
Sardo and Serrasqueiro (2017). Overall, VAIC (present value) was significantly related to
productivity, growth and market value of the present year. By contrast, firm profitability
was positively and significantly associated with HCE of the current year (p-value ¼ 0.019),
indicating that human resources played a significant role in enhancing the profitability of
Indian listed firms. This observation is consistent with the argument of Kamath (2008) that
HC is the driving component affecting firm FP in developing economies.
The correlation exceeded 0.8 in the case of VAIC and HCE (p-value ¼ 0.856), implying
a multicollinearity problem (Kennedy, 1985; Gujarati, 2012) between the current and
previous periods.
JIC
19,5
948
Table IV.
Industry wise
of the variables
descriptive statistics
Industry/Variables HCE CEE SCE VAIC ATO ROA SG Tobin’s Q PC Size NOE AP Revenue
Business services and consultancy

Mean 8.27 0.47 0.71 9.45 0.67 5.87 46.11 23.71 0.28 5.90 349.22 186.10 1,216.22
SD 18.37 0.73 0.47 18.93 1.32 15.87 273.70 48.34 0.2 1.97 682.32 760.89 1,753.23
Metal and metal products
Mean 9.43 −0.68 0.82 9.57 3.94 4.46 60.63 2.24 0.38 8.77 4,721.33 2,474.00 30,573.97
SD 78.59 41.62 3.88 89.03 4.49 9.99 957.97 12.85 0.16 1.66 16,105.31 10,945.08 77,101.8
Textiles
Mean 4.45 1.23 0.28 5.96 2.53 0.05 77.14 2.59 0.25 7.09 1,988.18 103.89 4,501.24
SD 7.37 11.95 20.79 25.47 12.85 0.17 2,301.18 5.53 0.17 1.99 3,698.41 1,242.16 12,273.72
Food and agro-based product
Mean 5.74 0.63 0.69 7.06 4.611 3.76 21.85 1.36 0.37 7.54 2,138.96 681.25 8,887.48
SD 13.83 1.12 0.92 13.96 11.96 8.57 198.24 3.79 0.17 1.80 5,379.33 5,503.73 32,361.30
Communication
Mean 7.24 0.30 0.759 8.30 4.472 −0.015 1.31 1,434.50 1.78 4.32 6,738.09 4,474.26 50,431.37
SD 5.94 3.81 0.33 7.19 31.89 0.105 3.62 12,063.74 2.27 14.10 13,960.62 19,732.68 102,486.5
Drugs and pharmaceuticals
Mean 4.34 0.53 0.95 5.82 2.27 0.0561 1.75 1.7 0.348 7.17 2,222.83 926.53 6,109.92
SD 3.63 0.72 3.63 5.27 3.95 0.117 3.82 2.49 0.154 1.87 3,918.61 4,739.78 13,668.26
Health services
Mean 3.21 0.83 0.753 4.79 2.15 0.062 48.39 1.08 0.579 5.77 3,337.77 243.70 3,262.38
SD 1.63 0.84 0.615 1.91 2.06 0.314 36.18 1.49 0.221 2.56 7,996.88 646.99 8,466.65
Transport
Mean 8.18 0.83 0.753 4.79 2.15 0.062 2.51 2.51 7.42 7.44 2,136.69 14,926.45 723.43
SD 9.18 0.83 0.615 1.91 2.06 0.314 3.46 0.44 0.22 2.85 3,254.17 28,408.48 3,693.24
Electricity
Mean 9.70 0.59 3.29 0.59 1.15 1.431 0.45 8.39 0.47 −2.69 6,283.52 4,846.01 21,316.02
SD 2.95 0.526 3.66 0.53 1.88 1.36 0.18 3.42 −1.88 1.29 7,024.46 6,242.19 20,864.77
(continued )
Industry/Variables HCE CEE SCE VAIC ATO ROA SG Tobin’s Q PC Size NOE AP Revenue
Hotel and tourism

Mean 3.722 0.577 0.877 5.18 0.84 0.045 4.42 1.42 0.47 5.85 1,313.34 148.29 2,040.32
SD 4.642 1.328 1.748 5.68 7.82 0.07 3.75 2.12 0.27 2.409 1,909.44 697.06 3,807.44
Constructional materials
Mean 9.17 1.30 0.61 4.61 1.15 1.43 0.45 2.39 2.03 −2.69 1,435.77 843.72 11,345.51
SD 2.95 2.63 0.66 5.63 1.88 1.36 0.18 3.43 1.39 1.29 2,949.847 2,625.29 21,361.71
Recreational
Mean 9.91 0.37 0.80 1.077 0.954 0.04 2.46 1.42 0.32 6.15 989.92 394.47 2,869.09
SD 1.88 0.39 0.49 1.12 0 0.81 0.10 2.18 1.72 0 0.22 1.36 1,466.91 1,327.89 6,464.11
Consumer goods
Mean 5.88 3.48 −2.23 7.156 4.796 0.07 4.06 3.16 0 0.27 7.83 932.35 1,303.54 20,644.76
SD 1.44 6.34 3.57 7.06 2.11 0.086 1.029 5.92 0.17 2.57 1,573.08 4,416.86 49,434.94
Information technology
Mean 3.32 0.73 0.30 4.336 1.32 0.06 168.04 2.15 0.22 6.48 4,113.34 1,777.66 8,308.52
SD 5.83 2.01 6.14 8.83 3.14 0.22 3,696.66 4.61 0.17 2.18 14,224.56 9,638.83 38,379.88
Machinery
Mean 4.06 0.58 0.99 5.65 2.80 0.05 15.56 2.56 0.23 7.23 1,438.84 502.45 8,176.55
SD 5.01 1.99 6.28 8.29 14.07 0.17 46.73 6.21 0.15 1.79 4,625.35 3,806.38 30,283.31
Notes: In this table, descriptive statistics of each industry is given. SD stands for standard deviation, ATO stands for asset turnover ratio, ROA stands for return on
assets, SG for sales growth, Tobin’s Q as market value, HCE as value-added efficiency of human capital, CEE as capital employed efficiency, SCE as value added by
efficiency of structural capital, VAIC as the value added by the intellectual coefficient. PC stands for physical capacity, SER stands for dummy of the service sector, MAN
stands for dummy of the manufacturing sector, NOE stands for the number of employees, AP as average profit and REV as revenue. SD stands for standard deviation
performance
949
IC on firm
The impact of
Table IV.
JIC
19,5
950
Table V.
dependent,
independent and
control variables
Correlation matrix for
Tobin’s Tobin’s VAIC Firm
Variables ATO ATOt−1 ROA ROAt−1 SG SGt−1 Q Qt−1 VAIC t−1 HCE HCEt−1 CEE CEEt−1 SCE SCEt−1 PC Size SER MAN
ATO 1
ATOt−1 0.824* 1
ROA −0.048 −0.056* 1
ROAt−1 −0.067* −0.061 0.587* 1
SG −0.073* −0.070* 0.790* 0.507* 1
SGt−1 −0.089* −0.077* 0.513* 0.790* 0.632* 1
Tobin’s
Q −0.069* −0.064* 0.110* 0.104* 0.106* 0.102* 1
Tobin’s
Qt−1 −0.106* −0.073* 0.121* 0.134* 0.112* 0.129* 0.225* 1
VAIC 0.144* 0.114* 0.015 0.004 −0.037* −0.037* 0.043* 0.035* 1
VAICt−1 0.099* 0.140* 0.017 0.033* −0.028* −0.024* −0.011 0.043* 0.724* 1
HCE 0.040* 0.043* 0.019* 0.003 0.028 −0.033* 0.069* 0.062* 0.856* 0.633* 1
HCEt−1 0.030* 0.033* 0.003 0.023* 0.032 −0.027 0.035* 0.073* 0.655* 0.857* 0.695* 1
CEE 0.424* 0.343* 0.009 −0.01 0.009 −0.012 −0.024* −0.038* 0.558* 0.306* 0.361* 0.242* 1
CEEt−1 0.370* 0.430* 0.020* 0.017 0.024* 0.016 −0.082* −0.029* 0.348* 0.539* 0.252* 0.338* 0.644* 1
SCE 0.057* 0.068* 0.014 0.020* 0.024 −0.016 0.014 0.025* 0.433* 0.286* 0.467* 0.287* 0.007 0.008 1
SCEt−1 0.041* 0.044* 0.007 0.020* 0.017 −0.018 0.043* 0.019 0.309* 0.431* 0.296* 0.478* −0.022* −0.003 0.392* 1
PC −0.318* −0.288* 0.123* 0.125* 0.146* 0.1645* 0.083* 0.060* 0.006 0.013 −0.012 −0.005 −0.101* −0.089* 0.024* 0.037* 1
Firm Size −0.018 −0.021* −0.042* −0.042* −0.060* −0.061* −0.069* −0.072* 0.231* 0.220* 0.064* 0.066* 0.317* 0.285* 0.044* 0.0418* −0.01 1
SER −0.425* −0.427* 0.054* 0.054* 0.075* 0.074* 0.086* 0.096* −0.129* −0.127* −0.012 −0.100* −0.075* −0.077* −0.091* −0.092* −0.143* 0.319* 1
MAN −0.127* −0.118* −0.005 −0.005 −0.030* −0.030* −0.071* −0.073* 0.176* 0.166* −0.004 −0.001 0.254* 0.230* −0.021* −0.020* 0.087* 0.829* −0.050* 1.00
Notes: *,**Significant at the 0.05 and 0.10 levels, respectively
4.3 Diagnostic tests The impact of
To confirm the stationarity of our data, Fisher–Type unit root test is applied. It is IC on firm
employed on unbalanced panel data set. The p-value of 0.000 this analysis confirms the performance
alternate hypothesis, showing that the data are stationary. It can be said that data have no
unit root. Moreover, the multicollinearity was checked using variance inflation factor (VIF)
test and the highest value of VIF, 11.21. Usually, VIF value exceeding ten symbolizes
multicollinearity in data (Neter et al., 1990), hence the presence of multicollinearity 951
was confirmed in data. Additionally, Breusch–Pagan test was applied in data set to check
the heteroscedasticity. The null hypotheses were rejected, thus confirming the existence of
heteroscedasticity.
To solve the multicollinearity and endogenous nature of data dynamic SGMM was
applied. It uses instrumental variables and decreases the endogenous nature of data.
Blundell and Bond (1998) confirmed that SGMM estimator is suitable than GMM estimator.
Employing differencing followed by the level equation, SGMM increases the effectiveness of
the outcomes with the smaller time period and the larger number of firms.
4.4 Impact of IC on firm performance indicators

To obtain further insights on the relationship between firm performance and IC, a dynamic
SGMM regression analysis of models was performed as described in Section 3.3. Table VI
presents the nine regression outcomes. The results of regression model 1 show that ATOt 1
(coefficient ¼ 0.844 and p-value ¼ 0.055), SCE (coefficient value ¼ 0.170), CEEt 1
(coefficient ¼ 0.116), HCE (coefficient ¼ 0.014) and firm size (coefficient value ¼ 0.004)
were significantly and positively related to firm productivity. By contrast, HCEt 1, SCEt 1,
industry type and physical capacity had significant but negative impacts on ATO. The
results for the model 2 showed that ATO of the previous period, VAIC and physical capacity
had positive impacts on firm productivity.
Regression model 3 showed that ROAt 1 (coefficient ¼ 0.511) and CEE (coefficient ¼ 0.473)
had positive impacts on firm profitability, whereas HCEt 1 (coefficient ¼ −1.630) had
negative impacts.
Model 4 showed significant and positive impacts of IC on firm profitability
(coefficient ¼ 0.008) at the 1 percent level of significance. The findings reveal that IC can
be used as a potential tool for generating wealth.
Following the study by Sardo and Serrasqueiro (2017), models (5) and (6) were estimated
using Tobin’s Q as a dependent variable. Result for regression models (5) and (6) revealed
that Tobin’s Qt−1, VAICt−1, SCE, CEE, SCEt 1 and CEEt 1 had positive impacts on firm
market value. By contrast, HCEt 1 and firm size had significant negative impacts on the
market value of the Indian listed firms.
About firm SG, the results for the model 7 showed that SGt 1, SCE, CEE and CEEt 1
had influenced the firm SG positively and significantly. These findings imply that Indian
firms generate revenues from their investment in R&D and innovation along with physical
capacity. Model 8 shows that VAIC had significant impacts on firm SG.
Finally, the last regression result, model 9, showed that IC was statistically positively
significant at the 5 percent level of confidence. The distinction between service-oriented
firms and product-oriented firms had no influence on VAIC, inconsistent with the findings of
Kianto et al. (2010). This discrepancy suggests that companies moving toward a service
orientation need to change their approach to IC stocks and management.
Further, the firms were segregated into the manufacturing and service sectors and the
regression model was applied to check the influence of VAIC and its dimensions on
the indicators of firm performance. Tables VII–X represent the model where ATO is the
dependent variable. The findings show that VAIC contributes significantly and positively
on the four firm performance indicators taken irrespective of sectors.
JIC
19,5
952
Table VI.
(FP) of firms
Regression result of
(5), (6), (7), (8), (9) for

model (1), (2) , (3), (4),
financial performance
Model 1: Model 3: Model 5: Tobin’s Model 2: Model 4: Model 6: Tobin’s Model 9:
Variables ATO ROA Q Model 7: SG Variables ATO ROA Q Model 8: SG Variables VAIC
ATOt−1 0.844* ATOt−1 0.461** VAICt−1 0.243

(0.055) (0.062) (0.068)
ROAt−1 0.511* ROAt−1 0.517**
(0.053) (0.048)
Tobin’s Qt−1 0.838** Tobin’s Qt−1 0 0.819*
(0.029) (0.043)
SGt−1 0.533* SGt−1 0.564*
(0.038) (0.320)
HCE 0.014* 1.570 −0.056 0.163 VAIC 0.869** 1.569* 0.263* 0.320* ROA 0.008**
(0.214) (0.151) (0.093) (0.118) (0.195) (0.509) (0.082) (0.099) (0.004)
SCE 0.170** 0.631 0.274* 0.119*
(0.079) (0.500) (0.074) (0.061)
CEE −0.133* 0.473** 0.156* 0.119**
(0.064) (0.320) (0.031) (0.043)
HCEt−1 −0.005* −1.630** −0.165** −0.276*
(0.199) (0.954) (0.094) (0.108)
CEEt−1 0.116* 0.086 0.051* 0.049**
(0.052) (0.214) (0.025) (0.029)
SCEt−1 −0.017** −0.111 0.051* −0.006
(0.030) (0.190) (0.025) (0.028)
Size 0.004* −0.263* 0.047* −0.055* Size 0.073* −0.305* 0.062* −0.053** Size 0.113*
(0.002) (0.100) (0.019) (0.014) (0.057) (0.095) (0.025) (0.016) (0.031)
PC −0.072* 0.681** 0.230* 0.073* PC 0.137* 0.652* 0.234 0.060 PC 0.018
(0.022) (0.159) (0.026) (0.019) (0.030) (0.159) (0.034) (0.020) (0.018)
SER −6.612* 3.011** 0.408* −0.385 * SER 1.224* −2.178 −6.612* 1.880 SER 0.271
MAN −6.445* 0.002 0.0208 0.132 MAN 1.651* −3.375* −6.445* 2.710 MAN 0.094
Constant 0.303* 4.259* 0.560** 0.560** Constant 2.037 −0.806 −0.411* 0.102 Constant 1.293**
(0.159) (0.604) (0.094) (0.048) (0.300) (1.010) (0.159) (0.208) (0.138)
Observation 7,049 7,091 6,101 5,364
Observation 6,889 7,854 6,737 7,346
Observation 7,676
AR(2) 0.808 0.392 0.781 0.363
AR(2) 0.412 0.242 0.313 0.16
AR(2) 0.087
Hansen test 0.400 0.420 0.990 0.640
Hansen test 0.311 0.742 0.828 0.536
Hansen test 0.206
No. of 118 118 202 202
No. of 62 62 62 62
No. of 62
instrument instrument instrument
No. of groups 524 524 459 513 No. of groups 516 528 461 518 No. of groups 528
Notes: AR(2) is Arellano–Bond test for second-order autocorrelation. Sample period: 2001–2016. Robust standard errors are in parentheses. *,**Significant at 0.05 and 0.10 levels,
respectively
Model 2: ATO
The impact of
Variables Service sector Manufacturing sector IC on firm
performance
ATOt 1 0.185* (0.086) 0.011* (0.004)
VAIC 0.147** (0.097) 0.189* (0.218)
Size 0.029 (0.032) −0.71 (0.022)
PC −0.009 (0.007) −0.231 (0.024)
Constant 0.803 *(0.177) 0.743 (0.102) 953
Observation 2,255 9,165
AR(2) 0.219 0.415
Hansen test 0.148 0.179
No. of instrument 89 77
Table VII.
No. of groups 144 574 Regression result of
Notes: In this table, ATO stands for asset turnover ratio of the current year, ATOt 1 stands for asset turnover model (2) for
ratio of the previous year. AR(2) is Arellano–Bond test for second-order autocorrelation. Sample period: productivity (ATO) of
2001–2016. Robust standard errors are in parentheses. *,**Significant at 0.05 and 0.10 levels, respectively the service and
Source: Author’s compilation manufacturing sector
Model 4: ROA
Variables Service sector Manufacturing sector
ROAt 1 0.709* (0.138) 0.473* (0.097)

VAIC 0.128* (0.081) 0.008** (0.073)
Size 0.047* (0.006) 0.083* (0.035)
PC −0.006 (0.003) 0.234 (0.034)
Constant −0.294* (0.021) −0.439** (0.258)
AR(2) 0.308 0.612
Table VIII.
No. of groups 144 574
Regression result of
Notes: In this table, ROA stands for return on assets of the current year, ROAt−1 stands for asset turnover model (4) for
ratio of the previous year. AR(2) is Arellano–Bond test for second-order autocorrelation. Sample period: 2001– profitability (ROA) of
2016. Robust standard errors are in parentheses. *,**Significance at 0.05 and 0.10 levels, respectively the service and
Taking into account that each component of VAIC has different effects on the firm
performance (Chen et al., 2005), the outcomes of the regression model are shown in
Tables XI–XIV, where the dependent variables are ATO, ROA, Tobin’s Q and SG. Findings
from Table XI indicate that the dimensions of VAIC do not influence the productivity of the
service firms except SCEt 1 (coefficient value ¼ 0.062), whereas the manufacturing sector
shows no significant association with the components of VAIC. In Table XII, profitability of
the service firms is influenced positively by HCE (coefficient value ¼ 0.178) and CEE
(coefficient value ¼ 0.074) at 5 and 10 percent, respectively, whereas the HCE shows a
positive influence on ROA. The manufacturing firms are influenced positively with HCE
(coefficient value ¼ 0.096).
The results from Table XIII clearly show that the market value of service firm and
manufacturing firms are influenced negatively by HCE and CEE, respectively. Further, CEE
is significantly influencing the service sector market value. PC is influencing the SG of the
service firm positively, as shown in Table XIV.
JIC Model 6: Tobin’s Q
19,5 Variables Service sector Manufacturing sector
Tobin’s Qt−1 0.860* (0.075) 0.304* (0.121)

VAIC 1.170* (0.822) 0.280* (0.021)
Size −0.194** (0.112) −0.030 (0.129)
PC 0.076* (0.045) −2.27* (0.6678)
954 Constant 1.275 (0.773) 3.602* (1.097)
AR(2) 0.386 0.805
Table IX.
Regression result of Notes: In this table, Tobin’s Q stands for the market value of the current year, Tobin’s Qt−1 stands for the
model (6) for market market value of the previous year. AR(2) is Arellano–Bond test for second-order autocorrelation. Sample
value (Tobin’s Q) of period: 2001–2016. Robust standard errors are in parentheses. *,**Significant at 0.05 and 0.10 levels,
the service and respectively
manufacturing sector Source: Author’s compilation
Model 8: sales growth (SG)

SGt−1 0.748* (0.028) 0.006* (0.013)

VAIC 0.226* (1.64) 0.146* (0.017)
Size 0.005 (0.029) 0.759 (0.261)
PC 0.996* (0.625) 0.035 (0.431)
Constant 0.041 (0.059) −2.03 (0.029)
AR(2) 0.180 0.194
Table X.
Regression result of Notes: In this table, SG stands for sales growth, SGt−1 stands for sales growth of the previous year. VAIC
model (8) for sales stands for intellectual capital of the current year. AR(2) is Arellano–Bond test for second-order auto-
growth (SG) of the correlation. Sample period: 2001–2016. Robust standard errors are in parentheses. *,**Significant at 0.05 and
service and 0.10 levels, respectively
4.5 Robustness check and validity of the results

Specification tests of SGMM such as AR(2) (see Table VI) satisfy the first-order
autocorrelation and rejects second-order autocorrelation. Hansen’s J test assumes that all
instruments are valid as null hypothesis is that all instruments are valid. The p-value of this
analysis accepts the null hypothesis as shown in Table VI.
Moreover, a different Hansen test with the null hypothesis that all instruments are
exogenous also has p-values above the level of significance, indicating that this null hypothesis
also cannot be rejected. The number of group should be more than the number of instruments
is another thumb rule which verifies the validity of this instrument (Roodman, 2006).
Classic ordinary least squares or fixed effect analysis ignores the dynamic
relationships between a dependent variable and independent variables (Baltagi, 1995;
Nerlove and Balestra, 1992), whereas Roodman (2006) argued that SGMM exploits the
dynamic nature of dependent and independent variables by employing internal
Model 1: ATO
The impact of
Variables Service sector Manufacturing sector IC on firm
performance
ATOt−1 0.198* (0.089) 0.008* (0.007)
HCE 0.113 (0.083) 0.110 (0.073)
SCE 0.194** (0.139) −0.062 (0.077)
CEE 0.015 (0.046) 0.076 (0.093)
HCEt 1 −0.101 (0.076) −0.020 (0.057) 955
CEEt 1 −0.179 (0.129) −0.090 (0.120)
SCEt 1 0.062** (0.036) −0.003 (0.005)
Size 0.041 (0.038) −0.460 (0.432)
PC −0.098 (0.124) −1.06* (4.57)
Constant 0.668* (0.183) 2.32 (3.19)
AR(2) 0.178 0.302
Notes: In this table, ATO stands for Asset turnover ratio of the current year and ATOt−1 stands for the asset
turnover ratio of the previous year. HCE stands for the human capital efficiency of the current year, HCEt−1 Table XI.
stands for the human capital efficiency of the previous year. SCE and SCEt−1 is the structural capital Regression result of
efficiency of the current and previous year, respectively. CEE stands for the capital employed efficiency of the model (1) for IC
current and previous year, respectively. AR(2) is Arellano–Bond test for second-order autocorrelation. Sample components and
period: 2001–2016. Robust standard errors are in parentheses. *,**Significant at 0.05 and 0.10 levels, productivity
respectively of the service and
Model 3: ROA
ROAt−1 0.719* (0.1375) 0.424* (0.094)

HCE 0.178* (0.081) 0.095** (0.038)
SCE −0.016** (0.056) 0.010 (0.009)
CEE 0.074** (0.042) 0.002 (0.001)
HCEt−1 −0.171** (0.110) −0.053* (0.011)
CEEt−1 −0.056 (0.038) 0.001 (0.008)
SCEt−1 −0.019 (0.024) 0.003 (0.06)
Size 0.026 ( 0.021) 0.149* (0.062)
PC −0.008* (0.004) 0.062* (0.440)
Constant −0.075 (0.211) −0.695** (0.451)
AR(2) 0.283 0.210
Notes: In this table, ROA stands for return on assets of the current year and ROAt−1 stands for the return on Table XII.
assets of the previous year. HCE stands for the human capital efficiency of the current year, HCEt−1 stands for Regression result of
the human capital efficiency of the previous year. SCE and SCEt−1 is the structural capital efficiency of the model (3) for IC
current and previous year respectively. CEE stands for the capital employed efficiency of the current and components and
previous year, respectively. AR(2) is Arellano–Bond test for second-order autocorrelation. Sample period: profitability of the
2001–2016. Robust standard errors are in parentheses. *,**Significant at 0.05 and 0.10 levels, respectively service and
JIC Model 5: Tobin’s Q
19,5 Variables Service sector Manufacturing sector
Tobin’s Qt−1 0.872* (0.060) 0.342* (0.136)

HCE −0.934** (0.853) −0.004 (0.008)
SCE 1.236 (0.235) −0.004* (0.007)
CEE 0.401* (0.087) −0.296* (0.003)
956 HCEt 1 0.114 (0.205) 0.003 (0.006)
CEEt 1 0.395 (0.116) 0.0250 (0.022)
SCEt 1 −0.224 (0.410) −0.001 (0.002)
Size 0.133 (0.490) 0.198* (0.074)
PC 0.097 (0.160) −2.861** (0.559)
Constant 0.677 (0.494) 0.789 (0.522)
AR(2) 0.282 0.972
Notes: In this table, Tobin’s Q stands for the market value of the current year and Tobin’s Qt−1 stands for the
Table XIII. market value of the previous year. HCE stands for the human capital efficiency of the current year, HCEt−1
Regression result of stands for the human capital efficiency of the previous year. SCE and SCEt−1 is the structural capital
model (5) for IC efficiency of the current and previous year, respectively. CEE stands for the capital employed efficiency of the
components and current and previous year, respectively. AR(2) is Arellano–Bond test for second-order autocorrelation. Sample
market value of the period: 2001–2016. Robust standard errors are in parentheses. *,**Significant at 0.05 and 0.10 levels,
service and respectively
Model 7: SG
SGt−1 0.069* (0.030) 0.0561* (0.002)

HCE −0.209 (0.213) −0.270 (3.01)
SCE −0.034* (0.141) −0.044 (1.010)
CEE 0.735** (0.931) −1.66* (0.099)
HCEt−1 −1.08** (0.191) −1.60 (1.423)
CEEt−1 −0.996 (0.9175) −0.055 (0.095)
SCEt−1 −0.896 (0.113) 0.007 (0.149)
Size 0.816 (0.058) 6.47* (0.135)
PC 0.094 (0.123) 0.546 (0.476)
Constant 0.733 (0.523) −0.329 (0.214)
AR(2) 0.151 0.697
Table XIV. Notes: In this table, SG stands for sales growth of the current year and SGt−1 stands for sales growth of the
Regression result of previous year. HCE stands for the human capital efficiency of the current year, HCEt−1 stands for the human
model (7) for IC capital efficiency of the previous year. SCE and SCEt−1 is the structural capital efficiency of the current and
components and previous year, respectively. CEE stands for the capital employed efficiency of the current and previous year,
sales growth of the respectively. AR(2) is Arellano–Bond test for second-order autocorrelation. Sample period: 2001–2016. Robust
service and standard errors are in parentheses. *,**Significant at 0.05 and 0.10 levels, respectively
instrument thus producing consistent and robust results. Furthermore, the SGMM The impact of
estimator accepts that our model embraces all variables that could possibly influence the IC on firm
dependent variables and independent variable (Hansen and Singleton, 1982; Nadeem et al., performance
2017). Thus, we cannot reject the instrument validity. The proposition of the presence of
second-order autocorrelation is confirmed. Outcomes of the SGMM dynamic estimator are
robust and can be used to support our analysis of the empirical results (Blundell and
Bond, 1998; Roodman, 2006; Sardo and Serrasqueiro, 2017). Hence, SGMM estimator is 957
used in this paper.
5. Discussion of the empirical results

The findings and analysis in this paper successfully establish significant relationships of
firm market value, productivity, profitability and SG with IC and its components.
The hypotheses validation is shown in Table XV.
Findings of the models (2), (4), (6) and (8) indicate that VAIC is positively related with
Indian firm performance indicators stating that IC plays a significant and crucial part in
enhancing firm performance and generating wealth and growth in developing economies
(Sardo and Serrasqueiro, 2017). These findings validate the resource-based theory in the
Indian context. Hence, supports our H1a–H1d and are consistent with the findings of Amin
and Aslam (2017) and Nadeem et al. (2017).
Concerning the components of VAIC, findings of the model 1 clearly show that HCEt, SCEt
and size of the firm have a positive impact on ATO and supports H3a and H4a. This signifies
that the IC efficiency components, HCE and SCE together, affect the productivity of the firm in
India. This is in line with the study of Chen et al. (2005) who found a positive relation between
ATO and HCE and SCE. The manufacturing and service sectors also show the significant
influence of VAIC on firm performance, whereas CEEt was found to have statistical
significance impact but the negative relation gives a direction which rejects the H2a. It also
shows that both industry types have a significant but negative impact on firm productivity.
Results from the models (3), (5) and (7) display that CEE is correlating significantly with
the four performance indicators such as profitability, productivity, SG and market valuation
of the Indian firms, hence supporting H2b–H2d propositions but the negative relation with
productivity leads to the rejection of H2a. Further, the positive relationship with the CEE of
Hypothesis Supported/Rejected
H1a. Intellectual capital performance positively affects firm productivity Supported

H1b. Intellectual capital performance positively affects profitability Supported
H1c. Intellectual capital performance positively affects sales growth Supported
H1d. Intellectual capital performance positively affects market valuation Supported
H2a. Capital employed efficiency positively affects productivity Rejected
H2b. Capital employed efficiency positively affects profitability Supported
H2c. Capital employed efficiency positively affects sales growth Supported
H2d. Capital employed efficiency positively affects market valuation Supported
H3a. Structural capital is positively correlated with productivity Supported
H3b. Structural capital is positively correlated with profitability Rejected
H3c. Structural capital is positively correlated with sales growth Supported
H3d. Structural capital is positively correlated with market value Supported
H4a. Human capital efficiency positively affects firm productivity Supported
H4b. Human capital efficiency positively affects firm profitability Rejected
H4c. Human capital efficiency positively affects firm sales growth Rejected
H4d. Human capital efficiency positively affects firm market value Rejected Table XV.
Source: Author’s compilation Hypotheses testing
JIC the previous year reveals the significance of physical or financial capital in generating better
19,5 firm performance in the long term. Overall, significant association of CEE leads to the
conclusion that tangible assets are main drive behind the firm performance in Indian firms.
This finding is in line with the research conducted by Nadeem et al. (2017) and Ang and
Hatane (2014) taking firms from emerging economies, BRICS and Indonesia, respectively,
where the researcher found that CEE was a major contributor in profitability, the market
958 value of the firm.
H3a–H3d are supported by the regression result as shown in the models (3), (5) and (7),
indicating that SCE has a significant and positive influence on ATO, Tobin’s Q and SG in
Indian firms except for ROA. The analysis shows that SCE has insignificant influence on the
profitability of the Indian firms. This implies that the Indian firms are proficient in employing
their internal resources in enhancing knowledge of their employees and applying this
knowledge in innovation, patents and process of the organization, which, in turn, supports
organizational learning theory. This result is in line with the study of Chen et al. (2005) who
observed a significant relationship between market value, productivity and SG of the firm.
Considering the effect of HCE on Indian firm performance indicators, the regression
analysis from the models (3), (5) and (7) shows that only ATO was positively correlated by
the HCE of the firm, whereas rest firm performance indicators were affected significant but
have a negative relation with HCE. Thus, leading to rejecting H4b–H4d and supports H4a.
This is similar to the report of Li and Zhao (2018) who used data from Chinese listed firms
and found no significant relationship between firm values, namely; ROA, ROE, Growth and
capital market return except in capital-intensive firms.
The insignificant and negative link between firm profitability, SG and market value
findings suggests that the investors are still reluctant in investing on their human assets.
The HCE which exists in the form of employee’s knowledge, aptitude and skills gained with
experience within an organization. The investors fail to recognize the importance of human
resources. Overall, the SCE and CEE among the components of VAIC were observed to have
as major contributors as VA for Indian listed firms cannot be ruled out.
6. Conclusion
IC is gradually being accepted as wealth generator toward firm’s performance thus creating
competitive advantage and sustainability in business. Using 710 firms from Indian service
and manufacturing industries for the time period of 2001–2016, this paper aimed to
investigate the association between IC, its three components (HC, SC and customer capital)
and indicators of firm performance, i.e., productivity, profitability, SG and market value. We
used VAIC method as a proxy for IC performance and its component to examine the
hypotheses concerning the link between IC and firm performance indicators. It is clearly
observed from empirical results that IC is a fundamental cause aimed at enhancing firm
productivity, profitability, growth and market value. The results contribute to the literature
by signifying that IC has a significant role in Indian firm’s value creation. Customer capital
and SC were the greatest contributors to firm performance, among the components of VAIC.
The dynamic panel data analysis also reveals that CEEt 1 and SCEt 1 positively
influenced the firm market value of the current year. This result suggests that investments
in the previous year internal and external resources like product, process, and culture and
customer relationship are significant to present market value of Indian service and
manufacturing sector. Hence, it boosts the long-term association with the investors. These
findings are consistent with the conclusion of Bontis et al. (2015) and Nimtrakoon (2015) that
IC can boost the performance of the firm. The empirical evidence in the current study seeks
to identify IC as an important contributor to firm performance, growth and market value.
The positive correlation of previous year firm performance with the present year firm
performance further indicates consistency in the firm performance indicators.
6.1 Implications The impact of
The findings of the paper have suggestions for academics, managers and policymakers for IC on firm
better financial decision making and utilization of IC and its components. performance
6.2 Implication for managers and policymakers
The findings from our study suggest that IC is positively and significantly related with all
the FP indicators of the firm. It was evidenced that VAIC showed highest correlation with 959
the Tobin’s Q indicator in both service and manufacturing firms. This shows that IC
significantly influences firm’s market value irrespective of the firm type.
Regarding the sub-components of VAIC, SCE was found to have a positive influence on
the productivity of the service sector in India. The insignificant influence of SCE on
manufacturing firm’s performance indicator draws the attention of regulators over
immediate proper utilization of internal resources, corporate process along with the
investment on the research and development of sub-sectors like textile, food and agro
products. Nadeem et al. (2017) supported the view of Shah (2006) and argued that the
regulators must provide tax incentives research and development to bring more innovation
in services and product of these sub-sectors.

The managers who attempt to revive the firm performance and market value must invest
in the programs for skill development of HC which exists within the organization as
employees. This will lead to the enhancement of the knowledge of the knowledge workers
(employees), which, in turn, will enhance the innovation in product and process.
Policymakers and regulators can propose incentive programs to encourage investment
in innovation, research and development for better efficiency of firm’s SC.
Overall, the statistical result shows strong significant relation among CEE and ROA, SG,
Tobin’s Q. This supports resource-based theory and will help the investors in an efficient
allocation of the efficiency of the physical, financial capital for comprehensive improvement
of value creation.
6.3 Implications for researchers

This paper is perhaps the only paper to investigate the impact of IC on a firm’s performance
with special reference to endogeneity of data by employing SGMM in the manufacturing
and service sectors. Researchers have generally focused over single industries
(Kamath, 2017), and have overlooked the input of the service and manufacturing sectors
as a whole. This paper offers a new insight into the area of IC and its relation with firm
performance indicators within manufacturing and service industries by addressing the
endogeneity of the variables. The findings indicate that the FP of the firm is influenced
greatly by CEE except for ATO.
The findings of the present study are subject to limitations that provide avenues for
future research. This study, for instance, emphasize over registered firms from the service
and manufacturing sectors of an emerging economy, India. This study could be extended
to comparative analyses of other sectors and other countries. Finally, it would be useful to
measure the influence of corporate governance variables like gender ratio, family
involvement in these manufacturing and service sectors.
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Further reading
Mehralian, G., Rajabzadeh, A., Reza Sadeh, M. and Reza Rasekh, H. (2012), “Intellectual capital and
corporate performance in Iranian pharmaceutical industry”, Journal of Intellectual Capital,
Vol. 13 No. 1, pp. 138-158.
Corresponding author
Neha Smriti can be contacted at: [email protected]
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Journal of Intellectual Capital

The impact of intellectual capital on firm performance: a study of Indian firms

References: this document contains references to 95 other documents.

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Indian firms listed in COSPI

Design/methodology/approach – Hypotheses were developed according to theories and literature review.

manufacturing sectors in India. In 2015–2016, the Indian service market contributed

2.2 IC Literature review

2.4 Hypothesis development

Firms in the Less: observation with incomplete or missing Final

Food and agro-based product 140 50 93

H1b. IC performance positively affects firm profitability.

Meles et al. (2016) in a study conducted on US commercial banks. Their observation

3. Sample selection and research methodology

3.2 Variable measurement

Variables Measurement References

3.3 Independent variables: VAIC framework

where D is depreciation, A is amortization, OP is operating profits and EC is total

ICE ¼ HCEþSCE: (2)

Following Ramírez et al. (2017), HCE is an indicator of the VA efficiency

VA=HC ¼ HCE: (3)

VAIC ¼ ICE þCEE; (6)

3.4 Estimation method

Intellectual Capital Efficiency = HCE + SCE

þ b7 CEEi;t1 þb8 MAN þ b9 SERþ b10 PCi;t þ b11 SIZEi þ Zi þ ei;t ;

Variables Observations Mean SD Minimum Maximum

ATO 10,791 0.7720611 1.005562 −4.60517 10.1536

4.2 Correlation matrix

Business services and consultancy

Hotel and tourism

4.4 Impact of IC on firm performance indicators

(5), (6), (7), (8), (9) for

ATOt−1 0.844* ATOt−1 0.461** VAICt−1 0.243

ROAt 1 0.709* (0.138) 0.473* (0.097)

Tobin’s Qt−1 0.860* (0.075) 0.304* (0.121)

Model 8: sales growth (SG)

SGt−1 0.748* (0.028) 0.006* (0.013)

4.5 Robustness check and validity of the results

ROAt−1 0.719* (0.1375) 0.424* (0.094)

Tobin’s Qt−1 0.872* (0.060) 0.342* (0.136)

SGt−1 0.069* (0.030) 0.0561* (0.002)

5. Discussion of the empirical results

H1a. Intellectual capital performance positively affects firm productivity Supported

in services and product of these sub-sectors.

6.3 Implications for researchers

Learning Organization, Vol. 10 No. 4, pp. 216-227.

Journal of Intellectual Capital, Vol. 2 No. 3, pp. 192-203.

International Journal of Human Resource Management, Vol. 20 No. 3, pp. 562-577.

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