The Impact of Dimensions of Intellectual Capital on Small and Medium Enterprise (SMEs) Performance in Pakistan with a Mediating Role of Absorptive Capacity

Abstract

Purpose – The ability to acquire and learn knowledge has been most important challenges faced by business around the word. Especially Small and Medium Enterprises (SMEs). SMEs is a backbone of any emerging economy. The purpose of this paper is to empirically examine the mediating role of absorptive capacity and how it affects Intellectual Capital (IC) and SME efficiency in Pakistan. It also investigates the direct impact of the components of IC on business performance. Design/methodology/approach – Partial least square-structural equation modeling (PLS-SEM) was used to assess the effect of IC dimensions on performance of SMEs and to analyze the mediating role of absorptive capacity in this relationship. Data were collected from 486 SMEs owner/managers using a survey questionnaire with Likert scale items. Findings – The findings of the study show that absorptive capacity, played a positive mediating role in the relationship between the dimensions of IC and those of performance of the Small and Medium Enterprises (SMEs). The dimensions of Intellectual Capital were a strong predictor of SMEs performance and had a profound positive influence. Originality/value – This study contributes to the literature on Intellectual Capital (IC) by examining the role of absorptive capacity in the relationship between IC components and SMEs performance. This research also helps practitioners recognize the importance of transformation and the exploitation of knowledge for business performance.