Intellectual Capital and Financial Performance: Evidences from Indian Business Process Outsourcing Industry

Abstract

The purpose of this study is to empirically measure the impact of intellectual capital performance on the traditional financial performance measures of selected Indian Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO) companies. Data of 13 prominent Indian BPO/KPO companies listed on Bombay Stock Exchange is taken for study. The selected companies of BPO/KPO sector are heavily reliant on intellectual capital. Financial data of nine years i.e. from 2007 to 2015 is collected from financial database CMIE’s Prowess. Literature available on intellectual capital and efficiency measurement is thoroughly reviewed. Value Added Intellectual Coefficient (VAIC™) method is used to measure the value based intellectual capital performance of the selected companies. The financial performance variables used in the study are return on assets, return on equity and operating income ratio for profitability and asset turnover ratio for productivity. VAIC™ and its components are calculated i.e. efficiency of capital employed and efficiency of intellectual capital. Empirical analysis is conducted using models of panel data i.e. fixed and random to analyse the impact of VAIC™ components on financial performance measures. Findings from the analysis suggest that intellectual capital efficiency has a significant impact on profitability but not on productivity. While capital employed efficiency has a significant impact on profitability and productivity both.