Impact of Intellectual Capital on Financial Performance of Organizations : A Case Study from Three Different Sectors of Pakistan

Abstract

The purpose of the study is to explore the impact of intellectual capital on financial performance. This research is employed on three different sectors of Pakistan. Banking, Manufacturing and Oil and gas development are employed. For the measurement of intellectual capital Ante pulic's VAIC model is used. Correlation analysis used to demonstrate the relationship among intellectual capital and financial performance. The results of the study depicts that intellectual capital has significant impact on financial performance, and the component of VAIC has positive and significant impact on ROA. 1.INTRODUCTION; Businesses are competing in ever growing and competitive environment, and to sustain the businesses they have to face and cope many challenges in national and also international context, if the firms want to sustain and survive they have to attain a unique competitive edge. All the assets of a firm can be imitated but not the intangible assets. A new type of competitive edge is becoming prominent.(Johnson, Neave and Pazderka,2002).That is the intangible resources and capabilities of an organization but the effective use and management of that new knowledge is the key factor in attaining and maintaining the competitive advantage.(Galende, 2006).Companies are now competing in knowledge base economy operations and functions are being performed by knowledgeable workers.(Kline).That situation leads to the concept of knowledge base economy. Businesses are focusing on the value creation through the knowledge, skills and intangible resources, rather than the typically relying on financial resources or financial structure. Intangible resources, knowledge and competitive advantage are refers as the "Intellectual capital" that is known as the most important source of value creation and competitive advantage.(Drucker, 1993; Grant, 1996). It leads companies to obtain a competitive edge (Lev & Zarowin, 1999; Ruta, 2009; Yang & Lin, 2009). Intellectual Capital refers the resources that can create the value for an organization, and determine the competitiveness of the enterprises. Intellectual capital refers to a set of knowledge assets which affects organizations in developing competitive situation. (Sullivan,2000). In accounting perspective the intellectual capital with the concept of going