An Examination of the Relationship between Intellectual Capital Efficiency and Financial Performance

The purpose of the present study empirically examines the relationship between intellectual capital and traditional financial performance measures, i.e., profitability, productivity, and market valuation of companies in the Indian electronic industry. The Value Added Intellectual Coefficient (VAIC^TM) model has been used to measure the intellectual capital efficiency of the companies in this study. The results of the panel regression analysis revealed that intellectual capital could predict the financial performance of the company. The study evinced that individually, human capital was individually found to have a significant relationship with profitability and market valuation; whereas structural capital, which is an important element of intellectual capital did not have any significant contribution in improving the financial performance of the organization. The results further divulged that physical capital was highly regarded in improving the productivity and profitability of the companies. The findings also provide some insights into Indian capital market, in that Indian investors and shareholders seemed to give more importance to human capital resources than traditional physical resources while deciding about their investments.