Online published on 28 February, 2020.
Theliterature onthe role of intellectual capital on firm performanceishighlylimited tothe developed and a few emerging economies in the world. Further, the economy wide integrative studies are not much attempted in any emerging country context as well. Further the literatures are highly sector specific and limited to a few sectors like information technology, banking and high tech industries in the developing countries. Each country has its unique set of characteristics and India being one of the most recognized developing countries, where service sector (utilizing the extensive intellectual capital) is the driver of the economy. In Indian context, to the best of my knowledge a few studies on intellectual capital and its impact on f irm valuation and performance have been attempted which are highly sporadic and limited to the information technology and banking sectors of the economy. The dearth of literature on IC role on firms financial performances and valuation across different industry segments of Indian economy has motivated to carry out this integrative study. In the process, the study has also made an attempt to examine the sectors that derive competitive advantage out of the IC intervention in the Indian economy, where literature is vehemently silent. The role of competition is no doubt immense in shaping the industry and firm, which gets reflected in their firm performance and valuation. How both intellectual capital and competition do shape the firms and industry not much studies are there in the literature especially in Indian context brings up rationale for this study as well. Finally, not much literature studies how Indian firms across the industries have emerged with theirfinancial performance and firm valuation before andafterthe crisisin the presence of intellectual capital absorption and completion, justifies the present study. Although the intellectual capital absorption and the appropriate response to the competition by the firms are becoming important facets across the Indian industry space and their implication can be immense and even undesirable for the firms and Industry as well. Against this backdrop, this study has made an attempt to examine the role of intellectual capital and competition on firms valuation, firms financial performance and firms competitive advantage. In this manuscript, four broad objectives will be empirically examined: [i]toexamine theeffect of intellectual capital on firms valuation ingeneral andacross the industries in particular[ii]to examinethe effect ofintellectual capital onfirms financialperformance ingeneral and across the industries in particular [iii] to examine the effect of intellectual capital on f irms competitive advantage in general and across the industries in particular and [iv] to examine the direct and indirect effect of competition on firms valuation, financial performance and competitive advantage. The results suggest that the explanatory power of the individual intellectual capital components (VACA, HCVA and SCVA) observed to be better than the aggregate composite measure (VAIC) in examining the firms valuation, financial performance and competitive advantage. The results also affirm that expenditure on innovative capital and relational capital in some of the cases capture additional information on structural capital and have a positive effect on firms value in contemporaneous, laggedand beforeand after 2008 financial crisis terms effect terms. Further, inthe presence of all the Intellectual Capital components, firms with greater innovative capital (RD/BV) and relational capital (SD/BV) in the ensuing year tends to have higher market-to-book value in the following years provedpartially. The study doesnotsupporttheideathat aftercontrolling for structural capital efficiency of Intellectual Capital efficiency components, firms with greater innovative capital (RD/BV) and relational capital (SD/BV) tends to have higher valuation and financial performances during pre and post 2008 financial crisis in general and across the Indian industries. The results extend the understanding of the role of intellectual capital in creating firms market to book value for companies in Indian economy. The contribution of my study is broadly three folded: (i) contribution towards value added intellectual capital efficiency literature in broad Indian context, (ii) role of intellectual capital on firm valuation and firms financial performance in the presence of competition would no doubt be aunique contributionand (iii) changing behaviour of intellectual capital efficiency impacted the firms performance before and after 2008 global financial crisis is no doubt a novel idea integrated into the proposed study and (iv) the effect of intellectual capital efficiency on firms performance especially in the context of a set of competitive firms across the different segment of Indian industries may open up opportunities for the further studies. This contribution emerged out of the present study may also help investors, practitioners, regulators and researchers to better understand relationship between intellectual capital efficiency on firm performance in the presence of competition.
