Intellectual Capital, Political Uncertainty and Firm Performance: Evidence from Pakistan

Abstract

Purpose: This research has examined the impact of Intellectual Capital (IC) on performance of the firms in Pakistan while considering political uncertainty as moderating variable. Value Added Intellectual Coefficient (VAIC) model by Pulic (1998) has been used to calculate IC and its components and ROA is used to measure firm’s performance. Design/Methodology/Approach: The research used secondary data of firms, related to manufacturing sectors, listed in Karachi Stock Exchange-KSE 100 Pakistan for a ten-year period of 2010-2019. Regression Model has been employed to investigate the hypothetical relationship between IC and firm performance. Findings: Results of this paper revealed that CEE and CCE have a significant positive relationship with the financial performance of firms in Pakistan whereas SCE has negative effect on the financial performance of the firms. Furthermore, the findings suggest political instability as a significant moderating variable on the relationship among intellectual capital, its components and firms’ performance. Implications/Originality/Value: The findings suggest that the IC of Pakistani firms is driven by physical and customer capital which implies the need for efficient utilization of physical and relational resources primarily. This research is the first attempt in investigating the relative importance of intellectual capital success of any firm under political uncertainty.