Nexus between intellectual capital and profitability with interaction effects: panel data evidence from the Indian healthcare industry

Abstract

PurposeThis study seeks to understand the nexus between intellectual capital and profitability of healthcare firms in India with interaction effects.Design/methodology/approachRelevant data were extracted from the Centre for Monitoring Indian Economy (CMIE)'s Prowess database for a period of ten years 2009–2018 for a sample of 84 selected firms from the healthcare industry. This study uses value added intellectual coefficient (VAIC) and modified value added intellectual coefficient (MVAIC) as a measure of intellectual capital. Further, the study employs panel regression techniques to explore the relationship between intellectual capital and profitability.FindingsThe empirical findings reveal that the intellectual capital coefficient of healthcare firms in India averages 2.7757. It is also observed that a majority of the healthcare firms' intellectual capital coefficient is below the industry average. From the regression analysis, it is evident that the intellectual capital coefficient is positively related to the profitability of healthcare firms in India. As far as the components of intellectual capital coefficient are concerned, the capital employed coefficient (CEC) is the only component driving the profitability of healthcare firms in India. A further introduction of interaction terms improves model explainability and moderates the impact of the predictor variable on the response variable. Furthermore, it is observed that the intellectual capital coefficient of the healthcare industry is immune to changes in political regimes in India.Practical implicationsThe findings reveal that intellectual capital is an important driver of corporate performance, thus healthcare firms in developing economies like India need to enhance their intellectual potential. Therefore, corporates and governments in developing economies should stimulate investments in developing intellectual capital for enhanced corporate performance and economic growth. Thus, this study might be used as a reference by policymakers while drafting the future policy for the development of intellectual capital in general and healthcare sector specifically.Originality/valueThis is among the first few studies to explore such an empirical relationship for healthcare firms in India and among the few studies of this kind across the globe. It also makes novel contributions in considering interaction variables and seeking the consistency of results across different political regimes. However, the study examines one nation and one industry; thus, the generalisation of findings requires caution.