Intellectual capital, growth opportunities, and financial performance in European firms. Dynamic panel data analysis
| DOI | https://doi.org/10.1108/JIC-07-2017-0099 |
| Pages | 747-767 |
| Date | 26 June 2018 |
| Published date | 26 June 2018 |
| Author | Filipe Sardo,Zélia Serrasqueiro |
| Subject Matter | Organizational structure/dynamics,Behavioural accounting,Accounting/accountancy,HR & organizational behaviour,Information & knowledge management |
Intellectual capital, growth
opportunities, and financial
performance in European firms
Dynamic panel data analysis
Filipe Sardo
Universidade Europeia, Lisbon, Portugal, and
Zélia Serrasqueiro
Department of Management and Economics and CEFAGE-UBI,
Universidade da Beira Interior, Covilhã, Portugal
Abstract
Purpose –The purpose of this paper is twofold: first, to a nalyse the impact of intellectual capi tal (IC) and
growth opportunitie s on firms’financial performance as well as the moderating effect of IC on the
relationship betwee n growth opportunities and finan cial performance; and second, t o analyse the impact of
IC on growth opportuniti es.
Design/methodology/approach –The current study uses a sample of non-financial listed firms consisting
of 14 Western European countries for the period between 2004 and 2015. The estimation method used is
specifically the Generalised Method of Moments system (1998) estimator, a dynamic panel estimator.
Findings –The results reveal that the IC efficiency of the current period has a positive impact on the
financial performance of high-, medium- and low-tech European firms. A non-linear relationship was found
between growth opportunities and financial performance. Also, findings suggest that the positive
relationship between growth opportunities and financial performance is enhanced with the efficient use of
firms’IC. Results indicate that the efficient use of IC in the current period has a greater impact on growth
opportunities in high firms. Additionally, results reveal the presence of a non-linear relationship between
ownership concentration and growth opportunities.
Originality/value –The current study contributes to the current literature by exploring a sample of firms
across Western European countries, which is divided among high-, medium- and low-tech firms. The
econometric modelling enables the author to conduct a longitudinal study.
Keywords Financial performance, Intellectual capital, Ownership concentration, Growth opportunities
Paper type Research paper
1. Introduction
In a knowledge-based economy, intellectual capital (IC) is recognised as a source of firms’
growth, innovation and competitive advantage (Lev, 2004). The European Union (EU)
acknowledges that innovations and the human factor—IC—can be seen as the main drivers
of countries and firms’future growth as well as individuals’development (OECD, 2013).
Therefore, the EU defined the smart growth as one of the main priorities in the Europe 2020
strategy (Veugelers et al., 2015), i.e., economic growth based on innovation and knowledge.
IC is a key resource for firm’s value creation process and to create sustainable
competitive advantages (Holland, 2006; OECD, 2013). Despite the recognition of the
importance of IC for firms’future growth, contributing to growth opportunities, the
innovation environment in the EU remains weak (Cincera et al., 2015). The access to external
finance and the recent economic crisis accentuated the scarcity of financial resources,
mainly to fund investments in intangible assets, such as IC (Cincera et al., 2015; Hall et al.,
2016). Therefore, in order to incentivize innovation, the EU has made efforts to fund
innovation through projects such as the Horizon 2020 strategy (Veugelers et al., 2015).
IC investments, often referred to as intangible assets, are claims of future benefits, which do
not have physical or financial form (Lev, 2004) and strongly contribute to value creation
Journal of Intellectual Capital
Vol. 19 No. 4, 2018
pp. 747-767
© Emerald PublishingLimited
1469-1930
DOI 10.1108/JIC-07-2017-0099
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1469-1930.htm
747
Intellectual
capital
through employees’knowledge, organisational processes and innovation and relationships
(Serenko and Bontis, 2004; Wang et al., 2014; Youndt et al., 2004).
In spite of the results of several studies (Bontis, 1998; Denicolai et al., 2015; Nimtrakoon,
2015; Tseng et al., 2013; ul Rehman et al., 2011) that indicate a positive relationship
between IC and financial performance, the difficulties in valuating IC investments increase
agency costs due to the information asymmetry (Aboody and Lev, 2000; Lev, 2004; Lev
and Zambon, 2003). Aboody and Lev (2000) suggested that information asymmetry
between a firm’s insiders and outsiders worsens in firms with high IC investments, due to
assets’specificity. This specificity of IC investments may create adverse selection, moral
hazard and opportunistic behaviour by managers (Aboody and Lev, 2000; Holland, 2006).
On the one hand, ownership concentration may block the entrance of highly qualified and
trained managers (Greco et al., 2014; Miller and Le Breton-Miller, 2006; Westhead and
Howorth, 2006), due to the lack of willingness to share control. On the other hand, agency
problems might be solved due to the alignment of interests between owners and managers
(Lemmon and Lins, 2003). Previous empirical evidence shows contradictory results
(Baber, Janakiraman, and Kang, 1996; Baker, 1993; Hutchinson, 2002; Hutchinson and Gul,
2004; Muniandy and Hillier, 2015; Serrasqueiro et al., 2007). Thus, ownership
concentration may influence negatively or positively firm’s financial perf ormance and
growth opportunities.
Various authors (Abdolmohammadi, 2005; Tan et al., 2007; Zéghal and Maaloul, 2010)
conclude that the effect of IC on firms’financial performance depends on the industry sector
and that IC investments influence the level of growth opportunities (Sudarsanam et al.,
2006). The current study differs from previous studies about the impact of IC on firms’
financial performance (Bontis, 1998; Denicolai et al., 2015; Nimtrakoon, 2015; Tseng et al.,
2013; ul Rehman et al., 2011), as it analyses the relationships between IC, growth
opportunities and firms’financial performance in Western European high-tech,
medium-tech and low-tech firms. Therefore, this study seeks to contribute to the current
literature by addressing the following objectives: to analyse the impact of IC and growth
opportunities on firms’financial performance as well as the moderating effect of IC on the
relationship between growth opportunities and financial performance; and to analyse the
impact of IC on growth opportunities.
Based on a sample of non-financial listed firms in 14 Western European countries for the
period between 2004 and 2015, we defined high-tech, medium-tech and low-tech sub-samples
following Ortega-Arguiles et al. (2009). For the second part of the study, following the
criteria of Moncada-Paternò
-Castello (2016), we grouped the whole sample into high- and
low-tech sectors. The current study uses econometric modelling techniques, resorting
specifically to the Generalised Method of Moments (GMM) system (1998) estimator to
analyse dynamic panel data. The results reveal that IC efficiency of the current period has a
positive impact on the financial performance of high-tech, medium-tech and low-tech
European firms. The results indicate the non-linearity of the relationship between growth
opportunities and financial performance. The findings of the current study also suggest that
the positive relationship between growth opportunities and financial performance is
enhanced with the efficient use of firms’IC. The financial crisis of 2008–2009 had a negative
effect on financial performance in high-tech and medium-tech firms. The findings indicate
that the efficient use of IC in the current period has a greater impact on growth opportunities
in high-tech firms. Finally, results reveal the non-linearity of the relationship between
ownership concentration and growth opportunities.
The current paper is structured as follows. In Section 2, we present the theoretical
framework and hypotheses formulation; the methodology is described in Section 3; in
Section 4, we present the results; Section 5 discusses the results; and finally, Section 6
presents the conclusion and implications.
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