The relationship between intellectual capital and firm performance

Abstract

This study aimed to measure the impact of intellectual capital on firm performance of listed firms in Saudi stock exchange. The study methodology was a pooled data collected from the Saudi stock exchange (TADAUWL) for the period from 2012 to 2014. The study sample is 489 observations from 171 listed firms. The study independent variable is Intellectual Capital components (HCE, SCE and CEE). The dependent variable is firm performance which measured using ROA, ROE and Tobin’s Q. The study also utilized five control variables in order to help measure the relationship between Intellectual Capital and Firm Performance. In conclusion, the study found that the Intellectual Capital level tends to be higher with firms that have high performance. However, there is variation in the level across the sectors. Random effect regression model was incorporated; the results revealed that there is no significant impact of Intellectual Capital on firm’s operational performance (ROA). However, there is the significant positive impact of Human capital on financial performance (ROE). Additionally, the study concluded that there is the negative significant impact on structural capital efficiency and positive significant impact on Capital Employed Efficiency on firms’ market performance (TQ). These results are expected to broaden the understanding of IC and its impact on firms’ performance in GCC economies in general and specifically in Saudi economic. Moreover, it will be useful for GCC firms to place their priorities and financial plans for effective and efficient use of Intellectual Capital.

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