Interpreting the dynamic performance effect of intellectual capital through a value-added-based perspective
| Pages | 381-401 |
| DOI | https://doi.org/10.1108/JIC-05-2019-0098 |
| Date | 06 March 2020 |
| Published date | 06 March 2020 |
| Author | Irene Wei Kiong Ting,Chunya Ren,Fu-Chiang Chen,Qian Long Kweh |
| Subject Matter | Information & knowledge management,Knowledge management,HR & organizational behaviour,Organizational structure/dynamics,Accounting & Finance,Accounting/accountancy,Behavioural accounting |
Interpreting the dynamic
performance effect of intellectual
capital through a value-added-
based perspective
Irene Wei Kiong Ting and Chunya Ren
Faculty of Industrial Management, Universiti Malaysia Pahang, Gambang, Malaysia
Fu-Chiang Chen
Department of Accounting Information, Chihlee Institute of Technology,
New Taipei City, Taiwan, and
Qian Long Kweh
Faculty of Management, Canadian University Dubai, Dubai, United Arab Emirates
Abstract
Purpose –The question of whether intellectual capital (IC) is beneficial to firm performance is debatable
because of the diverse effects of IC and its components on firm performance. Building on the concept of pay–
performance relation, this study aims to provide new insights into how changes in IC affect changes in firm
performance.
Design/methodology/approach –Dataenvelopment analysisis employed to measure firm performance,and
value-added intellectual coefficient(VAIC™) is selected to evaluate theIC and its components, namely human
capitalefficiency (HCE), structuralcapital efficiency(SCE), and capital employed efficiency(CEE). Ordinaryleast
squares regressionis applied to study therelationship between changesin IC and changes in firm performance
using 6,408 firm-yearobservations of electronicscompanies listed in Taiwan from2006 to 2017.
Findings –Empirical results suggest that IC efficiency and CEE significantly and negatively affect firm
performance, thereby suggesting a contradictory common sense withthe resource-based view on the beneficial
effects of IC. However, changes in IC efficiency and HCE are significantly and positively related to changes in
firm performance, including changes in firm efficiency and sales growth.
Practical implications –This study suggests that managers should continuously pay attention to adjusting
their IC, especially human capital (HC) for better decisions that help grow firm performance. Moreover,
investors can grasp how sensitive firm performance is to IC.
Originality/value–This study argues the relationship between IC and firm performance in the same vein as a
pay-for-performance link, suggesting that future studies should account for increases or decreases in IC.
Keywords Intellectual capital, Firm performance, VAIC, Data envelopment analysis, Pay–performance
relation
Paper type Research paper
1. Introduction
The rapid development of knowledge-based and high-tech companies in recent years has
prompted scholars and policymakers to focus more attention on the importance of intellectual
capital (IC), which are all intangible values that can contribute competitive advantages to a
firm (Roos and Roos, 1997;Stewart and Ruckdeschel, 1998) and are related directly to firm
performance (Tan et al., 2008). Barney (1991) suggests that the more valuable resources a firm
invests in, the stronger its corresponding competitive advantages. However, existing
empirical studies have identified significant or insignificant associations between IC and firm
performance. For instance, previous studies have shown that IC is significantly and
Performance
effect of
intellectual
capital
381
We would like to thank Universiti Malaysia Pahang, which financially supported this research
(University Grant Scheme RDU1903110).
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1469-1930.htm
Received 13 May 2019
Revised 20 August 2019
11 November 2019
16 January 2020
Accepted 16 January 2020
Journal of Intellectual Capital
Vol. 21 No. 3, 2020
pp. 381-401
© Emerald Publishing Limited
1469-1930
DOI 10.1108/JIC-05-2019-0098
positively related to firm performance (Abdullah and Sofian, 2012;Clarke et al., 2011;Smriti
and Das, 2018), while other studies have found no direct relationship (Firer and Mitchell
Williams, 2003;Kehelwalatenna, 2016;Mosavi et al., 2012). These differing results have been
argued to be due to the different IC measurements or economic conditions in different
countries or the lagged firm performance’s effects on IC investment (Nadeem et al., 2017). The
present study predicts that the dissimilar extant empirical findings are due to the neglected
scrutiny of how changes in IC affect changes in firm performance, namely the acceleration
principle effect on IC and firm performance.
The proposed concept of this study corroborates Sardo et al. (2018), who recommend
considering the effects of continuous investment in IC on firm performance. Specifically, from
the dynamic environment perspective, prior studies did not consider whether the empirically
proven effects of IC and its components on firm performance are caused by increases or
decreases in IC. To elaborate, business activities are affected by the internal and external
environments of the firm, which are complex and changeable, and thus, the allocation of
resources will also change. In other words, changes in the IC could be an important factor in
proving the utilization of IC in firms. Whether the growth of IC will cause firm performance
growth to accelerate or slow down can also explain the reasons for the gap in changes in IC
research in today’s challenging and fast-changing business world. Therefore, placing more
focus on the dynamic IC effects on firm performance is necessary.
Taken together, this study extends the existing IC–performance research scope by
considering the relationship between changes in IC and changes in firm performance. The
existence of a lagged IC effect on firm performance has received attention in the literature. For
instance, by analyzing the dynamic panel data of the Indian service and manufacturing
industry, Smriti and Das (2018) find that the coefficient of capital employed and structural
capital in the prior year has positive effects on a firm’s market value in the current year.
Clarke et al. (2011) find capital employed efficiency (CEE) in the last year to have a negative
effect on firm performance, and last year’s human capital efficiency (HCE) and structural
capital efficiency (SCE) positively affect return on assets (ROA). Different from prior studies,
this paper aims to continue the debate by analyzing the effects of changes in IC on the
changes in performance based on the idea of pay–performance relation. To test the sensitivity
of firm performance to IC, this study employs a data set of Taiwan’s electronics industry
listed companies for the period of 2006–2017. Taiwan’s electronics industry is regarded as
one of the biggest industries in the country and a key strength, with emphasis on all areas of
computers and component technologies[1]. This paper involves two stages.
In the first stage, this study uses data envelopment analysis (DEA), particularly the
Banker et al. (1984) (BCC) model that handles multiple inputs and outputs in one run to
estimate the firm performance of Taiwanese electronics companies. This study finds that the
sample companies are 73.3 percent efficient, suggesting a room of 26.7 percent for
improvement. Meanwhile, the average of changes in firm performance is about 1 percent.
This study also incorporates sales growth or changes in sales as another measurement of firm
performance. The average sales growth records an 8.3 percent increase. The commonly
applied value added intellectual coefficient (VAIC™) model is used to measure IC (Pedro et al.,
2018). This study argues that the results obtained from VAIC and its components, which
match well-accepted IC definitions (Chen Goh, 2005;Tseng and James Goo, 2005), provide a
reliable reflection of IC and its changes because it can be applied to any size of firms and is an
easily understood model particularly for those without related knowledge and expertise.
In the second stage, following the suggestion of Banker et al. (2019), this study performs
ordinary least squares (OLS) regressions to first examine how IC and its components affect
firm performance. This study finds that VAIC and particularly CEE significantly and
negatively affect firm performance. Although these findings are contradictory to the
resource-based view (RBV) on the beneficial effects of IC, they are in line with some prior
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