Nexus between intellectual capital and profitability with interaction effects: panel data evidence from the Indian healthcare industry
| DOI | https://doi.org/10.1108/JIC-05-2020-0137 |
| Published date | 14 April 2021 |
| Date | 14 April 2021 |
| Pages | 588-616 |
| Subject Matter | Information & knowledge management,Knowledge management,HR & organizational behaviour,Organizational structure/dynamics,Accounting & finance,Accounting/accountancy,Behavioural accounting |
| Author | Ranjit Tiwari |
Nexus between intellectual capital
and profitability with interaction
effects: panel data evidence from
the Indian healthcare industry
Ranjit Tiwari
Chandragupt Institute of Management, Patna, India
Abstract
Purpose –This study seeks to understand the nexus between intellectual capital and profitability of
healthcare firms in India with interaction effects.
Design/methodology/approach –Relevant data were extracted from the Centre for Monitoring Indian
Economy (CMIE)’s Prowess database for a period of ten years 2009–2018 for a sample of 84 selected firms from
the healthcare industry. This study uses value added intellectual coefficient (VAIC) and modified value added
intellectual coefficient (MVAIC) as a measure of intellectual capital. Further, the study employs panel
regression techniques to explore the relationship between intellectual capital and profitability.
Findings –The empirical findings reveal that the intellectual capital coefficient of healthcare firms in India
averages 2.7757. It is also observed that a majority of the healthcare firms’intellectual capital coefficient is
below the industry average. From the regression analysis, itis evident that the intellectual capital coefficient is
positively relatedto the profitability of healthcare firms in India. As far as the components of intellectual capital
coefficient are concerned, the capital employedcoefficient (CEC) is the only component driving the profitability
of healthcare firms in India. A further introduction of interaction terms improves model explainability and
moderates the impact of the predictor variable on the response variable. Furthermore, it is observed that the
intellectual capital coefficient of the healthcare industry is immune to changes in political regimes in India.
Practical implications –The findings reveal that intellectual capital is an important driver of corporate
performance, thus healthcare firms in developing economies like India need to enhance their intellectual
potential. Therefore, corporates and governments in developing economies should stimulate investments in
developing intellectual capital for enhanced corporate performance and economic growth. Thus, this study
might be used as a reference by policymakers while drafting the future policy for the development of
intellectual capital in general and healthcare sector specifically.
Originality/value –This is among the first few studies to explore such an empirical relationship for
healthcare firms in India and among the few studies of this kind across the globe. It also makes novel
contributions in considering interaction variables and seeking the consistency of results across different
political regimes.However, the study examines one nation and one industry; thus, the generalisation of findings
requires caution.
Keywords Intellectual capital, Interaction effects, Healthcare firms, Panel data
Paper type Research paper
1. Introduction
Traditionally, tangible resources are believed to be the primary factors contributing to
profitability (Alipour, 2012;Tiwari and Vidyarthi, 2018). However, due to the growing
dominance of a knowledge-based economy (Pulic, 1998), intangible resources are now
receiving their due importance. Intangible resources broadly include human capital,
structural capital and relational capital (Bontis, 1996;Sveiby, 1997), which are fully or
partially controlled by the organisations that contribute to a firm’s value creation ability.
These intangible resources are collectively known as intellectual capital (Stewart, 1997;
Edvinson and Malone, 1997). During the last two decades, the importance of intellectual
JIC
23,3
588
The author would like to thank the associate editor and anonymous reviewers for their valuable
comments and suggestions to improve the quality of the paper.
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 1 May 2020
Revised 31 August 2020
30 October 2020
Accepted 23 November 2020
Journal of Intellectual Capital
Vol. 23 No. 3, 2022
pp. 588-616
© Emerald Publishing Limited
1469-1930
DOI 10.1108/JIC-05-2020-0137
capital in enhancing the competitiveness and performance of organisations, particularly in
knowledge-based firms, has been highlighted by several studies (Edvinson and Malone, 1997;
Stewart,1997;Pulic, 1998;Bontis,1999;Chen et al., 2005;Alipour,2012;Vishnuand Gupta, 2014;
Smriti and Das, 2018). However, previous studies mainly focus on banking, financial
services, pharmaceutical and mixed industry. Limited evidence was found from the
healthcare sector even though it is one of the fastest growing sectors in the world
(Deloitte, 2019).
The 2020 Global Healthcare Outlook by Deloitte stated that “...thisis an exciting time for
the global health care sector as it progresses along its journey to the future...”(Deloitte, 2019,
p. 2). The organisation predicts that during 2019–2023, health expenditure will increase at a
compound annual growth rate (CAGR) of 5 %, up from 2.7 % during 2014–2018. Although
this increase will be common across nations, the highest annual increase will be in the Middle
East/Africa (7.4 %) and Asia (7.1 %). This implies that the healthcare sector will grow at a
faster rate than before. Business Wire (2019) reported in an article that the healthcare market
across the world grew at a CAGR of 7.3 % during 2014–2018 and is expected to grow at a
CAGR of 8.9 % to reach a market size of $11.91 tn by 2022. Going forward, fast-moving
regions in the healthcare market will be the Asia–Pacific and Africa where growth will be in
double digits at CAGRs of 13.4 % and 13.1 %, respectively. Drivers of this tremendous
growth opportunity are a growing and ageing population, significant economic growth in
emerging markets, the increasing prevalence of diseases, infrastructure investments,
technological advancements (significantly in the area of AI), evolving care models and global
health insurance reforms (Business Wire, 2019;Deloitte, 2019). Moreover, the current
situation caused by COVID-19 has made clear the world’s preparedness for healthcare crises.
Therefore, it is expected that post-COVID-19, substantial investments will be made in the
healthcare sector by both governments and corporates across the world in order to be future
ready. This will further fuel growth in this sector.
The Indian healthcare sector, which falls under the fastest-growing Asia–Pacific region, is
expected to grow from US$ 110 bn in 2016 at a CAGR of 22 % during 2016–2022 to reach US$
372 bn in 2022 (Ministry of Chemicals and Fertilizers, 2019). The healthcare industry in India
comprises hospitals, medical equipment, clinical trials, tele-medicine, outsourcing, medical
tourism and health insurance among others, which facilitate the provision of healthcare to
patients (Invest India, 2020). The industry is growing at an immense pace due to increasing
income levels, an ageing population, increased health awareness and changing attitudes
towards preventive healthcare. Moreover, due to the low cost of healthcare services and
clinical research, India is emerging as a favourite medical tourism destination and hub of
research and development activities for international players. Thus, there is an enormous
scope for increasing the penetration of healthcare services in India, providing extensive
opportunities for the growth and development of the healthcare industry (IBEF, 2020). In this
regard, the pertinent question is how such high growth can be achieved.
One of the primary characteristics of the healthcare industry is that it is highly knowledge-
based and that the role of intellectual capital and knowledge management is crucial in
organisations (Habersam and Piber, 2003;Ferreira et al., 2010;Carlucci and Schiuma, 2012).
Similar to other knowledge-based firms, the most valuable assets of healthcare firms are the
knowledge, skills and experience of the leaders and professionals working in the sector and
their external relations (Evans et al., 2015). However, although healthcare is a knowledge-
based industry, healthcare firms have rarely managed their intellectual capital to meet
strategic goals and improve performance (Evans et al., 2015). The Indian healthcare industry
is no of exception as the concept of intellectual capital and its disclosure are still in their
infancy (Smriti and Das, 2018).
Healthcare is a booming sector in India and is primarily a knowledge-based industry.
Therefore, firms that will generate competitive advantage by continuously managing their
Intellectual
capital and
profitability
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