The interrelationship between intellectual capital and firm performance: evidence from China's manufacturing sector
| DOI | https://doi.org/10.1108/JIC-08-2019-0189 |
| Published date | 10 September 2020 |
| Date | 10 September 2020 |
| Pages | 313-341 |
| Subject Matter | Information & knowledge management,Knowledge management,HR & organizational behaviour,Organizational structure/dynamics,Accounting & finance,Accounting/accountancy,Behavioural accounting |
| Author | Jian Xu,Jingsuo Li |
The interrelationship between
intellectual capital and firm
performance: evidence from
China’s manufacturing sector
Jian Xu and Jingsuo Li
School of Management, Qingdao Agricultural University, Qingdao, China
Abstract
Purpose –The purpose of this paper is to examine the impact of intellectual capital (IC) and its components
(human, structural and relational capitals) on the performance of manufacturing listed companies in China.
This paper also investigates the impacts of company ownership, industry attributes and region on the IC-
performance relationship.
Design/methodology/approach –The study uses the data of 953 manufacturing companies listed on the
Shanghai and Shenzhen Stock Exchanges over the period 2012–2016. The modified value-added intellectual
coefficient (MVAIC) model is applied to measure IC efficiency. Finally, multiple regression analysis is employed
to test the research hypotheses.
Findings –This study reveals that IC can enhance firm performance in China’s manufacturing sector. Overall,
earnings are affected by physical capital, human capital (HC) and structural capital (SC), and profitability and
productivity are influenced by physical capital, HC, SC and relational capital. Physical capital is the most
influential contributor to firm performance. In addition, state-owned enterprises have a greater impact of IC on
firm performance than private-owned enterprises; high-tech manufacturing companies have higher IC
performance than non-high-tech manufacturing companies; manufacturing companies in China’s eastern
region have higher IC performance than the counterparts in central and western regions.
Practical implications –The findings may help managers, stakeholders and policymakers in developing
countries to effectively and efficiently manage their IC resources.
Originality/value –This is the first study to evaluate IC and its relationship with firm performance among
Chinese manufacturing listed companies using the MVAIC model.
Keywords Intellectual capital, Firm performance, Manufacturing listed companies
Paper type Research paper
1. Introduction
Intellectual capital (IC) has become one of the hottest research interests in the field of
accounting and finance in recent years. In a developing economy, IC has been considered a
dominant resource critical to enhancing firm performance (Kamath, 2008;Khalique et al.,
2015;Andreeva and Garanina, 2016;D
zenopoljac et al., 2016;Dzenopoljac et al., 2017;Xu et al.,
2017,2019a;Xu and Wang, 2018,2019a) and maintaining competitive advantage (Jardon and
Martos, 2012;Yaseen et al., 2016). Therefore, to offer high-valued products and services,
companies should invest in IC and use it efficiently.
China has been the largest manufacturing nation in the world, but not the strongest
nation. The manufacturing sector is one of the most knowledge-intensive and fast-growing
sectors (Smriti and Das, 2018) and contributes a large portion of China’s economy (Jin et al.,
2018). In the competitive international market, China’s manufacturing sector has faced many
Intellectual
capital and
firm
performance
313
The research was financially supported by the Soft Science Research Plan of Shandong Province (Grant
Number 2019RKB01222), the Key Research and Development Program of Shandong Province
(Grant Number 2019FW037) and the Social Science Planning Research Program of Shandong Province
(Grant Number 20CGLJ05).
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 August 2019
Revised 12 January 2020
6 March 2020
17 May 2020
10 July 2020
Accepted 12 August 2020
Journal of Intellectual Capital
Vol. 23 No. 2, 2022
pp. 313-341
© Emerald Publishing Limited
1469-1930
DOI 10.1108/JIC-08-2019-0189
internal and external pressures such as insufficient innovative inputs, lower energy
efficiency, serious environmental pollution, rising labor costs and lower production costs of
other emerging manufacturing nations. The “Made in China 2025”plan issued by China’s
State Council aims to transfer the development pattern of the manufacturing industry from
depending heavily on natural or other tangible resources to paying great attention to
environmental protection (Xu and Sim, 2017;Jin et al., 2018). In the process of economic
transformation, China’s manufacturing sector should invest more in intangible resources,
especially IC resources. In addition, many researchers have also focused on the
manufacturing sector in the extant IC literature (Phusavat et al., 2011;St-Pierre and Audet,
2011;Ji et al., 2014;Khalique et al., 2015;Andreeva and Garanina, 2016,2017;Crema and
Verbano, 2016;Sanchez-Gutierrez et al., 2016;Cisneros and Hernandez-Perlines, 2018;Xu and
Wang, 2018;Bayraktaroglu et al., 2019;Xu and Li, 2019;Xu et al., 2019b;Xu and Liu, 2020).
Does IC improve the performance of manufacturing companies in the particular context of
China, the world’s largest developing country? Do company ownership, industry attributes
and region influence the IC–performance relationship? These two issues will be addressed in
this study. To do so, we modify the value-added intellectual coefficient (VAIC) model
developed by Pulic (1998,2000) to explore the relationship between IC and its components
and firm performance, based on the data from 953 manufacturing listed companies in China.
The contributions of this paper are summarized in six ways. First, it is the first empirical
study that analyzes the impact of IC and its components on firm performance in the
manufacturing sector in China, an emerging market. This study tries to extend the IC
research because previous studies have focused mainly on developed countries. Second, we
completely and systematically measure firm performance from three aspects: earnings,
profitability and productivity. Simple measurement of firm performance is not adequate for
stakeholders’analysis. Third, we also examine whether company ownership, industry
attributes and region influence the IC–performance relationship. Fourth, we apply the
modified VAIC (MVAIC) model by introducing relational capital (RC). It is suggested that the
MVAIC model is much better than the VAIC model to measure IC (Nimtrakoon, 2015;Xu and
Wang, 2018,2019b). Fifth, we also add the growth rate of gross domestic product (GDP) and
consumer price index (CPI) as control variables to minimize external influences. Finally, the
findings of this study will be useful for the management of manufacturing listed companies
seeking to enhance IC performance.
The paper is organized as follows. Section 2 presents the literature review, and Section 3
develops the hypotheses tested in this study. Then, methodology is presented in Section 4.
Section 5 shows the empirical results, with Section 6 discussing these results. Finally,
conclusions are made in Section 7.
2. Literature review
2.1 Intellectual capital and its measurement
The concept of IC was first introduced by Galbraith (1969). He posited that IC is “the process
of value creation.”Subsequently, Kaplan and Norton (1996a) argued that IC includes
investments in suppliers, customers, employees and technology. Bell (1997) defined IC as a
resource that an organization utilizes to create competitive advantage, including the forms,
strategies and special methods. Stewart (1997) thought of IC as the synthesis of knowledge,
information, skill, experience and learning ability. Edvinsson and Malone (1997) and Archer
et al. (1998) argued that IC is hidden between market and book value of a firm. Although IC
definition is not consistent among scholars, it is indeed an intangible asset that can generate
wealth to firms.
Scholars have classified IC into different components. Brooking (1996) thought that IC
comprises human capital (HC), structural capital (SC), market capital and knowledge property
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