Impact of intellectual capital on corporate performance: evidence from the Arab region
| Published date | 09 October 2017 |
| Pages | 884-903 |
| Date | 09 October 2017 |
| DOI | https://doi.org/10.1108/JIC-01-2017-0014 |
| Author | Vladimir Dzenopoljac,Chadi Yaacoub,Nasser Elkanj,Nick Bontis |
| Subject Matter | Information & knowledge management,Knowledge management,HR & organizational behaviour,Organizational structure/dynamics,Accounting & Finance,Accounting/accountancy,Behavioural accounting |
Impact of intellectual capital on
corporate performance: evidence
from the Arab region
Vladimir Dzenopoljac, Chadi Yaacoub and Nasser Elkanj
College of Business, American University of the Middle East, Egaila, Kuwait, and
Nick Bontis
DeGroote School of Business, McMaster University, Hamilton, Canada
Abstract
Purpose –The purpose of this paper is twofold: first, to fill a gap in the intellectual capital (IC) literature by
providing insights into the relationship between IC and corporate performance among Arab companies and
second, to challenge the validity of the Value Added Intellectual Coefficient (VAIC) as a measure of
IC’s contribution to performance.
Design/methodology/approach –The research sample included 100 publicly traded Arab companies
selected by Forbes Middle East and ranked as top performers in terms of sales, profits, assets, and
market value. The methodology included assessing the impact of IC components on company earnings,
profitability, efficiency, and market performance for the period between 2011 and 2015. Research hypotheses
were tested through the presentation of descriptive statistics, normality tests, correlation matrix, and multiple
regression models.
Findings –The research yielded ambiguous results. Earnings and profitability were significantly affected
by structural and physical capital; efficiency was determined primarily by physical capital; and market
performance was mainly influenced by human capital.
Research limitations/implications –The main limitation of the research comes from disadvantages of
VAIC as the measure of IC’s contributions to performance.
Originality/value –The paper fills a void in the study of IC and corporate performance among
Arab companies.
Keywords Middle East, Arab region, Intellectual capital, Business performance, Intangible assets,
Value added intellectual capital
Paper type Research paper
Introduction
The growth of most developed economies in recent decades is derived mainly from
technologies related to knowledge and information production and diss emination.
These technologies, wh ich first appeared in the lat e 1950s, expanded with the
exponential use and production of personal computers, and the widespread use of e-mail
and the internet. Organizations soon realized the considerable potential of new technology,
which transformed the nature of work and economies in general (Powell and Snellman,
2004). In its 1996 groundbreaking report, the Organization for Economic Cooperation and
Development (1996) confirmed the growing importance of knowledge and technology in
economic growth. During the second half of the 1990s, the number of countries
and industries that shifted from heavy reliance on physical labor to technology increased
significantly. According to the same report, the Organization for Economic Cooperation and
Development (OECD) economies during this period became more dependent on the
production, distribution, and use of knowledge. Output and employment were expanding
rapidly in industries such as computers, electronics, and aerospace. In the last ten years, the
high-technology share of OECD manufacturing production and exports has more than
doubled, to reach 20-25 percent. Knowledge-intensive service sectors, such as education,
communications, and information, have grown even faster. It was estimated that more than
50 percent of GDP in major OECD economies had become knowledge-based by 1996.
Journal of Intellectual Capital
Vol. 18 No. 4, 2017
pp. 884-903
© Emerald PublishingLimited
1469-1930
DOI 10.1108/JIC-01-2017-0014
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1469-1930.htm
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An important factor emanating from that statistic is that skilled labor was in highest
demand in OECD countries. The average unemployment rate for people with a secondary
education was 10.5 percent in comparison to 3.8 percent for people with university degrees.
In addition, the employment rate was highest in technology and science-based sectors
(e.g. computers and pharmaceuticals). These jobs required highly skilled employees and
demanded higher wages compared to those in industries that were less
knowledge-intensive, such as textiles or food processing. The need for knowledge-based
jobs in service sectors has continued to grow steadily.
The term “knowledge-based economy”became widely accepted after it appeared in
Thomas Stewart’s (1991) cover article in Fortune Magazine. The paper addressed IC in a
very broad way, as the sum of knowledge, information, intellectual property, and experience
held by everybody in a company, put to use to create a competitive edge. In essence,
IC represented a key component of the wealth of a company. Soon after, many researchers
attempted to refine, update, and further shed light on the IC of companies. Knowledge
management and IC are considered among the youngest management disciplines to have
gained acceptance in the scientific community (Bontis and Serenko, 2009; Serenko and
Bontis, 2013a, 2017; Dženopoljac et al., 2016).
The main research problem that this paper addresses is assessing the nature and
intensity of the relationship between companies’IC and their corporate performance.
In regards to the identified research problem, the authors focus more narrowly on one
main research objective, which is finding and analyzing the causal relationship between
corporate performance of the most successful Arab companies and their effective
exploitation of IC. In other words, the paper aims at revealing to what extent successful
Arab companies rely on their IC in achieving corporate success. Therefore, the paper is
structured as follows. First, the paper addresses the importance of IC and provides an
overview of various IC categories. Second, the topic of measuring IC is analyzed, through
a brief overview of different measures developed in the past, specifically focusing on the
Value Added Intellectual Coefficient (VAIC) index. Third, the paper presents several
important research contributions with regard to assessing the relationship between IC
and corporate performance. The fourth part of the paper presents the important
information about the research sample, hypotheses development and variable used,
proposition of the research model, and corresponding statistical analyses. Finally, the
paper discusses the research results, relevant conclusions, and practical implications, as
well as the avenues for further research.
Definition and categorization of IC
In order to manage and measure a phenomenon, it needs to be clearly defined. IC represents
a research topic with conceptual clarity, but great variety and diversity when it comes to
developing a precise definition. As the first step in capturing the holistic effect that IC has on
existing and future performance, it is necessary to define the term properly. Hall (1992)
viewed IC as a company’s value driver that transforms production resources into assets
with increased value. Stewart (1997) defined IC as a firm’s collective brainpower. According
to this definition, IC includes various forms of knowledge, important information,
intellectual property, and experience (Bontis, 1999). One of the most appealing and
influential definitions of IC was established by Sullivan (2000), who advocated that IC
represents company knowledge that has the potential to be converted into tangible profit.
This definition explains the true nature of IC since it views IC’s effect on corporate
performance as a potential, depending on whether managers will realize this potential
(Dženopoljac et al., 2016).
One of the important definitions of IC was given by Stewart (1997) who stated that IC
is the sum of everything everybody in a company knows that gives it a competitive edge.
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Impact of IC
on corporate
performance
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