The Impact of Intellectual Capital on Performance of Service and Industrial Firms in Middle East

Abstract

AbstractIntellectual capital (IC) has become an essential contributor to the performance of whole economies and individual companies. However, this contribution is relatively small in the countries of Middle East compared with other regions. In addition, previous literature focuses on examining the effect of IC on the performance of banks while other sectors received less attention. This research aims to examine the effect of value added intellectual capital (VAIC) and its components (Human capital efficiency (HCE), Structural capital efficiency (SCE), and capital employed efficiency (CEE)) on the performance of industrial and service sector of five countries in the Middle East. Data was collected from listed companies in the five selected countries in the Middle East. This research finds that VAIC has a significant effect on financial performance and CEE is the most important component of VAIC and has strong positive effect on ROA and MTBV. The effect of HCE, SCE, on both ROA, and MTBV was found to be insignificant. The findings are varied based on countries and sectors. Policy makers in the five selected countries need to pay more attention to the contribution that VAIC can make to the performance of their economies. The heavy dependence on financial capital and physical capital (observed in the CEE) that is common in these economies, should be redirected to the institutional and human intellectual categories (SCE and HCE).KeywordsIntellectual capitalPerformance of serviceIndustrial firmsMiddle east