A Study on Effectiveness of Investment in Intellectual Capital of Indian Knowledge Companies

Intellectual capital (IC) is non-monetary assets or resources without physical substances which are underlying factors of a firm's value creation process. Knowledge based companies mainly depend upon these type of assets for their value creation and competitive advantage. The present study makes an attempt to examine efficiency and effectiveness of investment in intellectual capital of 100 Indian knowledge companies during the period 2002 to 2011. In other words, this study examines the efficiency of intellectual capital management with regard to target level of Indian knowledge companies. For the purpose of the study, 100 Indian knowledgeintensive companies comprising 32 software companies, 32 pharmaceuticals companies, and 36 banking and finance companies are selected on the basis of highest market capitalisation. For measuring the efficiency of intellectual capital Pulic's VAICTM (value added intellectual coefficient) is applied. This study examines, by applying partial adjustment (PAM) model, how fast the sample companies are improving the respective level of intellectual capital efficiency with respect to a target efficiency level.

The study results also indicate that the speed of achieving that target level of efficiency of sample companies is moderate. From the beta values of regression results it is also observed that IT companies are more efficient in intellectual capital management with regard to target level as compared to banks and pharmaceutical companies.

This is the first study in the IC literature that applies partial adjustment model to examine the speed of achieving target efficiency level by an individual knowledge company. However, this study confined to knowledge companies only.