There is also nothing in the introduction about the state of the art and the novelty of this research. Based on the reviewer's valuable comments, the introductory part of the study has been revised and the contributions have been discussed more efficiently. Reviewer comment 5: This study did not discuss the results of the study.
The findings should alert corporate management to improve their financial performance and focus on IC. This is one of the few studies that provides empirical evidence on the impact of IC on firm financial performance using the MVAIC instead of the VAIC model in the Pakistani and Indian contexts. The importance of IC has grown rapidly due to the growing importance of the knowledge economy (Cabrita & Vas, 2009).
An overview of the literature is presented in section two, followed by the development of hypotheses in section three. A summary of the results is presented in section four, and a discussion of these results is presented in section five.
Theoretical Foundation
Finally, this study helps the management of listed companies improve their financial performance and provides crucial insights for policymakers in achieving their objectives.
Measuring IC –MVAIC
Human Capital
Structural Capital
Relational Capital
Capital Employed
Developing companies mainly focus on physical capital. 2019) found the significant positive effect of CEE on the financial performance of companies.
IC and Firm Financial Performance in Pakistan
Chinese bank's profitability is driven by SCE, while HCE drives the profitability of the bank in Pakistan. They found that IC and its components, HCE, CEE and SCE, positively affect companies' financial performance.
IC and Firm Financial Performance in India
Pal K and Soriya (2012) analyzed the relationship between ICE and company financial performance for one hundred and five pharmaceutical and one hundred and two textile companies from 2009 to 2010. They used VAIC (OLS) regression and found a positive relationship between IC and profitability measured in terms of ROA.
Theoretical Framework
RESEARCH METHODOLOGY 1 Population and Sample Size
- Variables and their Measurement
- Model Specification
- Descriptive Statistics
- Correlation Analysis of Pakistani Firms
- Regression Analysis of Pakistani Firms
- Correlation Analysis of Indian Firms
- Regression Analysis of Indian Firms
- Hypotheses Summary
Based on the table, Pakistani companies have an average return on assets of 0.09 while Indian companies have an average return on assets of 0.109 which means that the average return on assets of Pakistani companies is 9% while the average return on assets of assets of Indian companies is about 11%. The results also show that the average value of ROE of Pakistani companies is 0.178 and that of Indian companies. In the current study, three control factors have been used to limit the effect of these factors on the financial performance of companies (size, leverage and age).
The predictor variables HCE, SCE, CEE and MVAIC were found to have a significant impact on ROA and ROE. There is a significant positive correlation between ROA and ROE and HCE, SCE, CEE and MVAIC. HCE positively impacts ROA and ROE with R-squared 0.308 and 0.12, respectively, meaning that HCE entails a 30 and 12% change in ROA and ROE, respectively.
HCE is very important for Pakistani firms to achieve their primary objective in the form of ROA and ROE. This implies that Pakistani firms focus more on training, skills and education of employees. SCE also positively affects ROA and ROE with R-square 0.383 and 0.247, respectively. Therefore, companies are advised to focus on maintaining their relationships with stakeholders as stakeholder trust is also an important factor in enhancing the firm's financial performance.
CEE also significantly affects the firm's financial performance because the R-squared of ROA and ROE are 0.58 and 0.543, respectively. As a result, the conclusion can be formed that overall IC should be prioritized in order to gain a competitive advantage and improve the company's financial performance. Since these variables are related to the predicted variable, they should affect the firm's financial performance.
HCE positively affects ROA and ROE with R-squared of 0.255 and 0.138, respectively, which means that HCE causes a 25% and 13% change in ROA and ROE, respectively. HCE has a positive and significant relationship with ROA and ROE, suggesting that HC can contribute to improving firm performance. Furthermore, CEE significantly affects a firm's financial performance because the R-squared of ROA and ROE are 0.616 and 0.585, respectively.
Conclusions, Policy Implications, and Future Recommendations
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Frontiers: Article Published
The purpose of this study is to determine whether IC performance affects the financial performance of Pakistani and Indian listed companies between 2010 and 2020. Human capital (HC), structural capital (SC) and capital invested (CE) significantly affect Pakistani and Indian companies' financial performance. A rare study has addressed the impact of IC on firm financial performance using the MVAIC model instead of the VAIC model in Pakistan and India.
Singla (2020) investigated the relationship between IC and firm financial performance in the infrastructure and real estate sectors from 2008 to 2017. The added value of a firm's financial performance is measured by the contribution of IC and physical capital. EQL also significantly affects the firm's financial performance because the R-square of ROA and ROE are 0.58 and 0.543, respectively.
Since these variables are related to the predicted variable, they should affect the firm's financial performance. To the best of the researcher's knowledge, this is the first study to compare the impact of IC on firm financial performance in Pakistan and India. The financial performance of companies with strong IC will increase due to their ability to manage.
Furthermore, the study shows that intangible assets can improve the financial performance of firms in Pakistan and India. The relationship between intellectual capital and financial performance: An empirical investigation in an Iranian company. Intellectual capital and financial performance in a developing economy: an empirical investigation of a Nigerian bank.
On the relationship between intellectual capital and financial performance: a panel data analysis on SME hotels. Relationship between Intellectual Capital and Financial Performance of Pakistani Non-Financial Firms and a Comparative Study of the Textile and Chemical Industries.
