The Role of Intellectual Capital in Firm’s Financial Performance in Pakistan

Abstract

The objective is to consider the significant impact of intellectual capital on firm’s financial performance. The data was gathered from the Oil & Gas sector for the period of 10 years (2010-2020). The Panel data regression results were taken in order to examine the empirical relationships. The Fixed Effect (FE) model is to be accepted for the ROE & EPS and the random effect model is to be accepted for ROA. The Intellectual capital (IC) is considered as the unique organizational resource that can help to influence the business performance. However, the ineffective developments of the IC can adversely affect the performance of the business. It is found that human capital efficiency is notably increase the return on assets and earnings per share. The human capital efficiency does not show any relationship with return on equity. The structural capital efficiency put the firm towards better return on assets and return on equity. It is shown in the results that structural capital efficiency insignificantly explains the earnings per share. The relational capital efficiency is significant factor that improve the return on assets of firms. The relational capital efficiency does not show any role in the prediction of return on equity and earnings per share. It is derived from the results that capital employed efficiency significantly enlarge the return on equity of firms. The results have shown no significant relationship of capital employed efficiency with return on assets and earnings per share. The study contributed to the existing studies in strengthening the connection between the IC components and the FP of the business. The study would provide some valued perceptions for the business in order to capitalize the intellectual capital to endure the competitive advantage.