Abstract

 
 
 In the present scenario, intellectual capital has been established as an important corporate asset because conventional performance measurement techniques are incapable of measuring the intangible dimensions of corporate performance. It is a challenge, especially for knowledge driven firms, to measure the impact of intangibles on their financial performance. e main objective of this study is to show the impact of intellectual capital on the financial performance of the Indian IT sector. In order to conduct the study, the sample was drawn from the IT sector for which the sector index of BSE, namely the BSE IT,had been selected. In all,data from 51 companies from the Information Technology (IT) sector for the financial years ranging from 2006 to 2016 were taken. The data used in this study was extracted from the CMIE’s Prowess.
 The VAICTM was used to measure the intangibility of these firms. The results show thatonly the VAICTM had a significant positive association with profitability of the Indian IT sector, while it had an insignificant relationship with productivity and market valuation. The CEE had a significant positive relationship with productivity and profitability in the IT sector, while, in the case of market valuation, it had an insignificant impact. The HCE had aninsignificant impact on profitability and productivity, while, in the case of market valuation, it had a negative significant impact. The SCE had a significant positive association with market valuation only while it had an insignificant relationship with the productivity and profitability of the Indian IT sector.
 
 
Highlights
With the dawn of the 21st century, the information, communications, and computer technologies have undergone swift innovation and popularization, intensely altering human lifestyles and economic configurations
In order to understand the relationship of the individual components of VAICTM with the financial performance of the Information Technology (IT) sector, the model was further analyzed and the findings suggested that Capital Employed Efficiency (CEE) had a significant positive relationship with the productivity and profitability of the IT sector [Gan, Saleh, 2008; Chu et al, 2011] but in the case of market valuation, it had an insignificant association
This study rejected the arguments of many authors regarding the calculation of HC and SC in VAICTM that causes multicollinearity between Human Capital Efficiency (HCE) and Structural Capital Efficiency (SCE), and the insignificant impact of SCE on financial performance [Nazari, Herremans, 2007; Ståhle et al, 2011]
Summary
With the dawn of the 21st century, the information, communications, and computer technologies have undergone swift innovation and popularization, intensely altering human lifestyles and economic configurations. The digital revolution has initiated a paradigm shift in the production and supply of goods and services, in research and development, design, manufacturing, marketing, and transactions [Hsu, 2001]. In this era, land, labor, and physical capital have been replaced by knowledge, which is considered the most important factor for production [Drucker, 1988]. In today’s economy, it has become more important to devise new approaches to understand and measure organizational performance from the perspective of creating value with the knowledge-based assets of the company. These assets are mainly intangible in nature and are comprised of various components such as human resources, structural capital, and relational networks, along with the management activities related to strategy making, policy formation and implementation plans to optimally utilize these resources [Bontis, Nikitopoulos, 2001; Edvinsson, Malone, 1997; Guthrie, 2001; Itami, 1991]
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