Intellectual capital and firm perfomance among JSE-listed firms

Abstract

With the burgeoning of the Fourth Industrial Revolution, there is an ever greater reliance on knowledge work as it becomes the source of company productivity. With this in mind, capturing the impact of the value added by employees through intellectual capital has growing importance as a potential means of evaluating firm performance. The study seeks to aid in the analysis of financial and market performance of firms using an intellectual capital metric known as the Value-added Intellectual Coefficient (VAIC) (Pulic, 2000). Financial performance data including return on assets, revenue growth, headline earnings per share and market performance, as defined by market-to-book ratio and total share return, were gathered on 43 qualifying JSE-listed firms for the period from 2001-2017. Panel regressions were performed for each of the considered performance metrics for all firms and the entire period utilising both the complete VAIC model as well as its individual constituents, Intellectual Capital Efficiency (ICE) and Capital Employed Efficiency (CEE). For a thorough analysis, other significant control variables for firm specific factors were included such as the debt ratio, market capitalisation size, industry type and return on equity. No significant associations resulted from the empirical analysis with regards to the role played by intellectual capital as defined by VAIC or its constituents for any of the financial or market performance metrics in a South African context. Whilst the importance of the role of intellectual capital is intuitively undeniable, greater work is yet required to capture and quantify its impact to allow for a relation to, and thus more insightful evaluation of, firm performance through common financial and market measurements. Keywords: Intellectual Capital; VAIC; Firm performance; South Africa