The Impact of Intellectual Capital on Firms’ Performance: Evidence from Saudi Arabia

Khamoussi Halioui,Afnan Alturiqi

doi:10.5430/afr.v9n4p44

Abstract

The purpose of this study is to empirically investigate the relationship between intellectual capital (IC) measured by the value-added intellectual coefficient (VAIC) and firms’ performance (FP) in the Saudi context. Data are drawn from a sample of 25 Saudi firms listed on the Saudi Stock Exchange (Tadawul) for the period 2015-2018. Using the VAIC model, the multiple linear regression models were constructed to examine the relationship between intellectual capital (IC) and firms’ performance (measured in terms of financial and market performance). The findings indicate that there is a positive association between overall intellectual capital efficiency as well as each of its three components (human capital efficiency, structural capital efficiency, capital employed efficiency) and the firms’ financial performance. Additionally, there is a positive association between human capital efficiency(HCE), structural capital efficiency (SCE), and the firms’ market performance. Overall, the findings suggest that human capital efficiency (HCE) has a significant and positive impact on firms’ financial and market performance in Saudi Arabia. The VAIC method may be a useful tool for managers and investors in their decision process. This is the first study about the impact of intellectual capital on firms’ performance in four industry groups in Saudi Arabia using the VAIC model.

Highlights

The world moved from the production era, in which the physical assets of organizations: lands, buildings, etc., were a sole source of value creation to the knowledge era based on the idea that knowledge, instead of a physical asset, is the main driver of economic growth (Seetharaman, Helmi Bin Zaini Sooria & Saravanan, 2002)
The results revealed that the intellectual capital (IC) performance of Saudi banks is low and human capital efficiency (HCE) is positively associated with bank financial performance indicators and capital employed efficiency (CEE) is positively associated with bank financial performance indicators (ROE) while structural capital efficiency (SCE) has a nonsignificant association with financial performance indicators
This research aimed to investigate the association between the IC, each of its three components HCE, SCE, and CEE and firms’ performance (FP) for 25 Saudi listed firms in four industry groups for the period from 2015 to 2018

Summary

Introduction

The world moved from the production era, in which the physical assets of organizations: lands, buildings, etc., were a sole source of value creation to the knowledge era based on the idea that knowledge, instead of a physical asset, is the main driver of economic growth (Seetharaman, Helmi Bin Zaini Sooria & Saravanan, 2002). The information revolution, the digital world, and knowledge in the current era have made intellectual capital an important source of wealth creation alongside physical assets. Intellectual capital (IC) is a resource that provides a competitive advantage (Bayraktaroglu, Calisir & Baskak, 2019; Chen, Cheng& Hwang, 2005), which means it has a positive impact on firms’ performance for that firms need methodologies to identify and measure IC (Bayraktaroglu et al, 2019). The traditional accounting model remains focused on physical and financial assets and ignores most IC assets. The International Accounting Standards/International Financial Reporting Standards (IAS/IFRS) did not contribute to redefining many of the concepts, principles, and valuation methods of IC assets. Many researchers have made significant contributions to solving the problem of classification and measurement of IC (Dzenopoljac, Yaacoub, Elkanj & Bontis, 2017)

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Conclusion