A European empirical study of the relationship between firms’ intellectual capital, financial performance and market value

Abstract

Purpose The purpose of this paper is to analyze the relationship between firms’ intellectual capital (IC), financial performance (FP) and market value (MV) as well as the relationship between ownership concentrations on IC performance. Design/methodology/approach A large sample of non-financial listed firms belonging to 14 countries in Western Europe, for the period between 2004 and 2015, was investigated using the GMM system (1998) dynamic estimator and the effect of lagged explanatory variables on firm’s FP and MV. Findings The results reveal that IC is an important resource for firms’ value creation. Human capital is found to be a key factor of firms’ wealth. Results show that capital employed efficiency positively impacts on firms’ FP in the short run. The impact of IC components on firms’ MV may not be immediate. The structural capital positively affects firms’ FP in the long run. Also, the results reveal that ownership concentration and owners’ management involvement constrain firms’ IC performance. Originality/value The current study contributes to IC research by exploring a large sample of firms across countries in Western Europe using econometric modeling. Considering that the effect of IC on firms’ FP needs time to be realized, thus to be measured, the effect of lagged explanatory variables on performance was tested, using dynamic panel estimators, specifically the GMM system (1998) dynamic estimator.

Intellectual capital in Indonesia: dynamic panel approach

“…As shown in Table I, there is an overwhelming number of works have been performed in investigating the impact of the IC to firm performance, both in overall industries or a specific sector of industry and that were conducted not only in countries with developed economy but also less developed ones. Most of the results show a positive association between IC and corporate performance (Bollen et al, 2005;Goh, 2005;Tan et al, 2007;Ghosh and Mondal, 2009;Chu et al, 2011;Clarke et al, 2011;Rahman, 2012;Vishnu and Gupta, 2014;Nimtrakoon, 2015;Sardo and Serrasqueiro, 2017;Celenza and Rossi, 2014;Dženopoljac et al, 2016;Nadeem et al, 2017). Those are definitely in line with the resource-based theory that mentioned IC as "the value driver of all companies" (Stewart, 1997) or IC as "strategic resource that is used by a firm to gain competitive advantage and create value that the firm can use to enhance its performance " (Clarke et al 2011).…”

“…In contrast, SCE found not to have a significant relationship with firm performance (Clarke et al, 2011) and the same result towards RCE in Nimtrakoon (2015) and Vishnu and Gupta (2014). In fact, CEE was found to be positively related to firm performance (Chen et al, 2005;Clarke et al, 2011;Ting & Lean, 2009;Vishnu and Gupta, 2014;Zeghal and Maaloul, 2010;Joshi et al, 2013, Chu et al, 2011Sardo andSerrasqueiro, 2017, Nadeem et al, 2017). It would be interesting to investigate the different effect of each component on firm performance as the results were mixed.…”

“…A similar result is being confirmed by Maditinos et al (2011) who studied the relationship between IC, corporate's performance and market value in Greek during the period of 2006-2008 using the sample of 96 listed companies in four economic sectors, they managed to show the significant relationship between the efficiency of human capital and Return of equity. While Sardo and Serrasqueiro (2017) analyzed the association of IC, financial performance and market value for non-financial listed firms in Western Europe for the period of 2004-2015 including to evaluate the influence of ownership concentration and owner's management involvement on IC performance. Using GMM system dynamic estimator, they have revealed that IC is important resource to achieve firm's goal and all elements of IC except structural capital which has shown positive and significant result.…”

“…Thus, dynamic panel data regression using Blundell and Bond (1998) system generalised method of moment (GMM) estimator is applied to this research to produce consistent results. In authors' knowledge, only few research about relationship of IC towards firm performance and market value that have addressed the endogeneity problem (Nadeem et al, 2017;Sardo and Serrasqueiro, 2017;Yang and Zhao, 2017). The following section discusses the conceptual framework related to theories being used in the study.…”

The impact of intellectual capital on performance in Brazilian companies

“…Moreover, recent studies show an increasing attention given to intellectual capital in literature, as the study by (Sardo & Serrasqueiro, 2017;Dzenopoljac et al, 2017;Nawaz & Haniffa, 2017;Amin & Aslam, 2017).…”