Title: The effect of intellectual capital on firms' financial performance: an empirical investigation in India

Authors: Trilochan Tripathy; Luis A. Gil-Alana; Debadutta Sahoo

Addresses: Icfai Business School (IBS), IFHE University, Dontanapalli, Shankarpally Road, Hyderabad – 501504, India ' Faculty of Economics and Business Administration, University of Navarra, Pamplona, E-31080, Spain ' TCS Energy and Resources, Tata Consultancy Services, Services Tour Franklin (19th floor) – La Défense 8, 100-101 Quartier Boieldieu, 92800 Puteaux, France

Abstract: This study empirically examines the effect of the intellectual capital efficiency on firms' financial performance in selected Bombay Stock Exchange listed and permitted Indian companies. Using Pulic's (1998) value added intellectual coefficient (VAIC™) as the efficiency measure of capital employed and intellectual capital, the authors fit panel models to examine the effect of intellectual capital efficiency on firms' financial performance. The result suggests that the component based intellectual capital models explain better than the composite VAIC models. However comparing across the models, it is observed that the physical capital (VACA) positively influences the firms' ROA, which suggests that the physical capital has no doubt remained a key driving force for competitive business performance for firms' in India. The innovative capital efficiency captures additional information on structural capital which positively influences firms' financial performance. The results extend the understanding of the role of intellectual capital in creating corporate value and building sustainable advantages and financial performance for companies in emerging economies, where different technological advancements may bring different implications for the valuation of intellectual capital.

Keywords: intellectual capital efficiency; firm performance; financial performance; physical capital; structural capital; human capital; innovative capital; relational capital; India; VAIC; ROA; return on assets.

DOI: 10.1504/IJLIC.2015.072197

International Journal of Learning and Intellectual Capital, 2015 Vol.12 No.4, pp.342 - 371

Received: 14 Feb 2015
Accepted: 18 Mar 2015
Published online: 03 Oct 2015 *

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