Analysis of the Effect of Intellectual Capital on Financial

Applied mathematics in Engineering, Management and Technology 2 (3) 2014:163-170
www.amiemt-journal.com
Analysis of the Effect of Intellectual Capital on Financial
Performance of Companies Accepted in Tehran's Stock Exchange
Gholam Sajadi Khah, Mojtaba Mohammad Hosseiniyan, Reza Bakht
1,2
Department of Management, Science and Research Branch of Kohgiluyeh and Boyer-ahmad, Islamic Azad University, Yasouj,
Iran
3
Department of Management, dehaghan Branch, Islamic Azad University, dehaghan, Iran.
Abstract
Purpose: the goal of this research is to investigate the effect of intellectual capital
on financial performance of companies in Tehran's Stock Exchange.
Population, sample selection and scope of research: in order to achieve this goal,
a sample containing 180 companies among companies accepted in Tehran's Stock
Exchange was selected and the required research data were extracted during the
years 2009 to 2012 based on the data of sample companies.
Implementation Method and Research Project: in terms of goal, this research is
practical and the data analysis has been conducted by SPSS software and at the
95% confidence level. To assess the research hypotheses, the simple multivariate
linear Regression model statistical method was used.
Research Findings: research results indicate a significant and positive effect of
intellectual capital on the financial performance of companies. Given the research
results, the efficiency of companies' intellectual capital causes an increase in sail
and companies' market value. The practical results of this study indicate the importance of the role of intellectual capital in
the companies' financial performance.
Keywords: intellectual capital, financial performance, market value, growth of companies
1. Introduction
The present century is the century of knowledge-based economy. Before knowledge-based economy, the
industrial economy prevailed. In industrial economy, factors of production have been economic wealth, physical
and evident properties like land, work force, money, and machinery, etc. in this economy, use of knowledge as a
factor of production has had little significance but in the knowledge-based economy, knowledge or intellectual
capital takes precedence over evident and physical properties as a wealth production factor ( Ahmadpor et al,
2011).
In this current knowledge-based world, organizational capabilities are based on knowledge and intellectual
capital, and managers need to understand that what features are needed to maintain the value and competitive
advantage of organizations. So, the intellectual capital and knowledge assets are becoming a strategic lever to
manage the company's business performance and continuous innovation; thus, the organizations are no longer
producing just products and services but they produce value-added services to stay in the new economy; and in
this era, the major challenge of managers is to prepare a suitable environment for the development and growth
of the human mind in a knowledge-based organization. Knowledge management and intellectual capital have
become the basic skills of managers in the organizations; and in the current economy, value and competitive
advantage of organizations are based on knowledge and intellectual capital that are achieved through creating
proper communication with customers, gaining experience in this line, and relying on organizational techniques
and knowledge and special skills ( Mirtalee, 2011).
The goal of investors is to attain earnings and maximize their wealth. By investing, investors postpone the
present consumption of their capital so as to gain more consumption possibility in the future; this is why in
order to fulfill this, they invest in properties with high returns and fairly low risk. Rate of returns on a stock
sheet, is counted as the main factor in choosing investment (Norosh et al, 2006).
Today, most organizations intend to implement their knowledge management or intellectual capital
management programs. For instance, 80% of Fortune companies have knowledge management staff, and Ford
company could save approximately one billion dollars due to the effective implementation of knowledge
163
Applied mathematics in Engineering, Management and Technology 2 (3) 2014
G. Sajadi Khah et al
management program from 1997 to 2000. Studies also show that the approach based on knowledge can increase
the effectiveness of strategic alliances ( Boutis, 2002).
In today's knowledge-based societies, the deployed intellectual company returns is much more than the
deployed financial capital returns and compared with the intellectual capital, the role and importance of
financial capitals in determining sustainable profitability have significantly decreased. In other words, it could
be assumed that there is a direct relationship between the companies' rate of intangible properties and
knowledge on one hand and the actual value of their intellectual capitals (and eventually the companies' stock
market value) on the other hand). Due to the increase in relative importance of intellectual capital (as the most
important sector of company's capital ) in sustainable and continuous and long-term profitability, most
companies are in search of finding proper solutions to essential questions in the area of intellectual capitals (
Anvari Rostami & Rostami, 2002).
In today's knowledge-based and competitive world, one of the insufficiencies that our financial statements
suffer, is the lack of reflection of intellectual capital in financial statements. In Iran, recently numerous
researches have been carried out regarding the measuring of intellectual capital in different methods and
intellectual capital relations and different variables; and the goal of all these researches is the necessity of
recording intellectual capital as an intangible property item in financial statements. In this article, we will
investigate the necessity of attention to this property in stockholders' decisions in choosing managers and
investors' decisions in investing in companies, by emphasizing the role of intellectual capital in companies'
financial performance. As a result, the present research question is that: what is the effect of intellectual capital
on financial performance of companies?
2. Research Background
Rostami and Seraji (2005) assessed the relationship between intellectual capital and stock market value of
Tehran Stock Exchange companies. Research data were from Tehran Stock Exchange data in the span of 7
years, the results of statistical tests indicate the importance of intellectual capital and understanding the
importance of its value from investors and high correlation of intellectual capital with stock market values of
Tehran Stock Exchange companies. Chen chow et al (2005) assessed the relationship between intellectual
capital and the stock market value and financial performance of companies in Taiwan Stock Exchange. By
using Palic added value of intellectual capital model (2000), as a measuring of intellectual capital with the
regression model show that the higher intellectual capital of companies improves financial performance and
increase in stock market value of companies. Emma Garcia and Isabel Martinez (2007) in Spain concluded in a
similar research with title of intellectual capital information impact in investors’ decision makings that capital
analysts usually use more information about firm strategies, customer’s capital and organizational capital and
they need less to research ,renovation and development research information. Dominique and Talia (2009), the
results of their research in Indonesia show that intellectual capital has effect on the financial performance of
companies. Income increase rate is not much influenced by (IC), in this research results emphasized on
influence of intellectual capital on profitability and growth of production in coming years. Dimiyris and et al.
(2011), their research examines the relationship between intellectual capital, market value and financial
performance of Greek Stock Exchange companies in four major industries. The method used in their research is
similar to Palic method. The results of research confirmed the relation between performance of human capital
(VAHU) and ROA. Rostami and Seraji (2005) assessed the relationship between intellectual capital and stock
market value of Tehran Stock Exchange companies. Research data were from Tehran Stock Exchange data in
the span of 7 years, the results of statistical tests indicate the importance of intellectual capital and
understanding the importance of its value from investors and high correlation of intellectual capital with stock
market values of Tehran Stock Exchange companies. Lari (2010) in another research with title of non-capital
information divulge effect evaluation on investors decision makings state that there is relationship between
non-capital information and investors’ decision makings, and non-capital information divulge for investors is
related to participation in market, management quality, customers satisfaction and organizational culture,
respectively. Lari (2010) in another research with title of non-capital information divulge effect evaluation on
investors decision makings state that there is relationship between non-capital information and investors’
decision makings, and non-capital information divulge for investors is related to participation in market,
management quality, customers satisfaction and organizational culture, respectively. Shams and Khalili (2011)
in a research examined the relationship between intellectual capital and performance of listed companies in the
Stock Exchange. Results from this study show that intellectual capital has a direct relation with indicators of
164
Applied mathematics in Engineering, Management and Technology 2 (3) 2014
G. Sajadi Khah et al
return rate of equity, efficiency of employee, ratio of market value to book value of each share, return on assets
and earnings per share. Kalyta (2011) has explored the relationship between board of directors’ intellectual
capital and Tobins Q criteria, stock return and stock price increase in firms with American expanded scientific
level. Result indicates explored variables with number increase of scientific in board of directors.
3. Research Hypotheses
According to overall design and issue statement, this research’s hypotheses are suggested as following:
H1: Intellectual capital effects on the financial performance.
4. Research Method Kind
This research by methodology regarded to the research title is the excellent one after occurring and according to
purpose point of view, it is applicable. This kind of research is done for information acquisition from the
relationship between variables, and in the recent research, classified and audited data from accepted firms in
Tehran stock exchange would be in order to test research hypotheses.
Dependent
Variable
Tobins_Q
Independent Variable
PRO
Intellectual capital
Control
Variables
SIZE
LEV
AGE
GS
MV/BV
Figure 1: conceptual framework of the study
5. Research Statistical Sample and Society
Necessary condition for each research is accessibility to needed information. According to firms information
divulge condition, accessibility to information related to accepted firms in stock exchange is easier. Therefore,
Statistical society of this research would consist of all firms which have these terms:
1. They have participated in 2008 to 2012 capital year.
2. They should be as capital holder and investing firms, banks and insurance.
3. End of capital year should be March, and they shouldn’t have transaction index.
4. Their transaction index should be active and they shouldn’t have transaction index stop.
5. In all explored years at the end of capital year, their information and needed data should be accessible.
Therefore, research time period consists 5 frequent years from 2009 to 2012, and sampling method is systematic
removal that is selected in harmony with mentioned terms of 180 firms as statistical sample, and their data has
been used in hypotheses test.
6.Research Variables
Variable is a concept that could be substituted with two or more values or numbers.
6.1. Independent Variable:
165
Applied mathematics in Engineering, Management and Technology 2 (3) 2014
G. Sajadi Khah et al
In this research, the independent variable of the intellectual capital is calculated by the formula of market value
minus the book value of companies.
6.2. Dependent Variable:
In this research, the four factors of growth of sale (GS), the ratio of market value to book value (MV/BV),
company growth (GRO) and profitability (PRO) have been considered as the representative of measuring
financial performance of accepted companies in Tehran's Stock Exchange and have constituted the dependent
variables of this research.
 Company growth (GRO): the natural logarithm of Tobins Q ratio was used as the evaluation factor of
company growth. The Tobins Q ratio is calculated thus:
Tobins Q= stock market value + debits book value / total properties
 Profitability (PRO): the earnings rate before the tax detraction of the total properties, was used to investigate
the company's profitability.
PRO= the earnings before detraction of taxes/ total properties
 Market value to the company's book value (MV/BV): the ratio of market value to the book value of
properties was used as the representative of company's market value.
MV/BV= market value/ book value
6.3. Control Variables:
 Market size: in this research, in order to enter the size of companies in the hypotheses test model, the natural
algorithm of properties was used.
Size =Ln (Assets i,t)
 AGE: this variable is calculated by the algorithm of the number of company's activity years.
AGE=Ln (the number of company's activity years)
Financial leverage (LEV): this variable is calculated by the detraction of the total debits on the total properties
of the end of period.
LEV= total debits/ total properties
7. Research hypotheses test model
In order to test any of the research hypotheses, the following Regression model was used. In this model Y is
indicative of the four factors of growth of sale (GS), ratio of market value to company's book value (MV/BV),
the company growth (GRO) and profitability (PRO) as the representative of measuring financial performance of
accepted companied in Tehran's Stock Exchange.
Yit= +1(IC) +2(Size) +3(Lev) +4(AGE) +it
8. Research findings
Descriptive statistics tables of the variables are shown in Table 1.
166
Applied mathematics in Engineering, Management and Technology 2 (3) 2014
G. Sajadi Khah et al
Table 1: Descriptive statistics
Minimum
Maximum
N
Mean
IC
Statistic
900
Statistic
-5.05E6
Statistic
6.72E7
Statistic
1.0929E6
Std.
Deviation
Statistic
5.54603E6
GS
Tobins_Q
PRO
MVIBV
SIZE
LEV
AGE
900
900
900
900
900
900
900
-3835.89
-0.54
-30.35
-154.32
10.03
0.10
0.85
12899.89
2.04
730.16
87.07
18.55
3.06
1.79
13.7931
0.2501
1.3026
1.5012
13.5222
0.6576
1.5094
486.33506
.33897
26.41935
9.10179
1.40752
.25776
.18573
Table 2: Normality of dependent research variables
GS
Tobins_Q
PRO
Kolmogorov-Smirnov Z
0.879
0.478
0.163
Asymp. Sig. (2-tailed)
0.098
0.398
0.295
MV/BV
0.866
0.186
Now, given the output of the SPSS software, the normality of the selected data distribution could be determined,
in a way that if the signification level (Sig) is more than 0/05, the H O hypothesis is accepted and the selected
data normality claim is confirmed. Based on the table 2, the dependent research variables have a normal
distribution.
9.The Results of the Research Hypotheses Test
According to the four defined dependent variables, four minor hypotheses are analyzed.
9.1.The first minor hypothesis: intellectual capital affects the market value ratio to book value of companies.
Type of
variable
Independent
variable
Control
Variables
Table (3): The first minor hypothesis test results
Name of Variable
symbol
coefficient
t
Fixed amount
α
2.083
P-value
.038
intellectual capital
IC
.021
1.513
.046
Firm size
Financial leverage
Size
Lev
-.046
-.082
-1.151
-2.250
.250
.025
Company’s activity years.
AGE
-.018
-.498
.619
F
P-value
)D-W(
1.821
0.023
1.672
According to the first hypothesis test provided in Table (3), Statistical significance level (0.023) was less than
test error (5%), and total regressions model is significant.
Durbin-Watson statistic (1.672) is in the gap of 1.5 to 2.5; therefore, there is no correlation among model errors
ingredients. According to low level of (P-Value), t statistic from acceptable error level for β1 shows that there is
positive and significant relationship between market value ratio to book value and intellectual capital
coefficient.
9.2. The Second minor hypothesis: intellectual capital affects the Company growth.
167
Applied mathematics in Engineering, Management and Technology 2 (3) 2014
G. Sajadi Khah et al
Type of
variable
Independent
variable
Control
Variables
Table (3): The Second minor hypothesis test results
Name of Variable
symbol
coefficient
t
Fixed amount
α
2.088
P-value
.037
intellectual capital
IC
.028
1.679
.048
Firm size
Financial leverage
Company’s activity
years.
F
Size
Lev
AGE
-.085
-.016
-2.114
-.448
.035
.654
-.010
-.283
.777
6.267
P-value
)D-W(
0.043
2.002
According to the first hypothesis test provided in Table (3), Statistical significance level (0.043) was less than
test error (5%), and total regressions model is significant.
Durbin-Watson statistic (2.002) is in the gap of 1.5 to 2.5; therefore, there is no correlation among model errors
ingredients. According to low level of (P-Value), t statistic from acceptable error level for β1 shows that there is
positive and significant relationship between Company growth and intellectual capital coefficient.
9.3. The Third minor hypothesis: intellectual capital affects the Profitability.
Type of
variable
Independent
variable
Control
Variables
Table (4): Third minor hypothesis test results
Name of Variable
symbol coefficient
t
Fixed amount
α
2.028
P-value
.043
intellectual capital
IC
.032
1.782
.035
Firm size
Financial leverage
Company’s activity
years.
F
1.426
Size
Lev
AGE
-.094
-.007
-2.342
-.183
.019
.855
.003
.091
.927
P-value
0.024
)D-W(
2.002
According to the first hypothesis test provided in Table (3), Statistical significance level (0.023) was less than
test error (5%), and total regressions model is significant.
Durbin-Watson statistic (1.672) is in the gap of 1.5 to 2.5; therefore, there is no correlation among model errors
ingredients. According to low level of (P-Value), t statistic from acceptable error level for β1 shows that there is
positive and significant relationship between Profitability and intellectual capital coefficient.
9.4. The Fourth minor hypothesis: intellectual capital affects the growth of sale.
168
Applied mathematics in Engineering, Management and Technology 2 (3) 2014
G. Sajadi Khah et al
Type of variable
Independent
variable
Control Variables
Table (5): The Second Fourth hypothesis test results
Name of Variable symbol
coefficient
t
Fixed amount
α
7.388
P-value
.000
intellectual capital
IC
.397
10.436
.000
Firm size
Financial leverage
Company’s
activity years.
F
Size
Lev
AGE
-.268
.033
-7.153
.958
.000
.338
-.004
-.120
.904
30.161
P-value
)D-W(
0.000
1.785
According to the first hypothesis test provided in Table (5), Statistical significance level (0.000) was less than
test error (5%), and total regressions model is significant.
Durbin-Watson statistic (1.785) is in the gap of 1.5 to 2.5; therefore, there is no correlation among model errors
ingredients. According to low level of (P-Value), t statistic from acceptable error level for β1 shows that there is
positive and significant relationship between growth of sale and intellectual capital coefficient.
10. Conclusion
In this research, the effect of intellectual capital (IS) on financial performance of companies accepted in
Tehran's Stock Exchange was investigated. As the intellectual capital is increasingly known as a significant
strategic property for sustainable competition advantage, the results of the present research also supports the
claim that the intellectual capital is the competitive advantage of today's world. Empirical results obtained
support all the proposed hypotheses. Intellectual capital has a significant role in growth, market value and
profitability of companies. Additionally, by emphasizing the hypothesis of effect of intellectual capital on
growth of sale, intellectual capital causes an increase in the companies' market share. Today, despite the
increase in the importance of intangible properties and specially non-material and intellectual capitals in the
companies, most accounting systems are not capable of clear and proper calculation of company performance in
accordance with the intellectual capital. These results are compatible with the findings (Chin Cho (2005),
Apohami (2007)) of Piotan et all (2007), Yalama & Kousk, Bountis (1998).
Resources
Abbasi, A, Galdi sedghi, A.(2010). Survey the effect of intellectual capital elements efficiency on financial performance of
companies in Tehran Stock Exchange. Accounting and Auditing Studies, Vol6, No17, 74-57.
Anvari rostami,A, Rostami,M, (2004). Evaluation of models and methods for intellectual capital measurement and
Valuation of companies. Accounting and Auditing Studies, Vol, 34,No10, pp51-75.
Barney,J.B .(1991).Firm Resource and Sustainable Competitive Advantage, Journal of Management Vol.17,1: 99121.
Bontis, N. (1998), “Intellectual capital: an exploratory study that develops measures and models”, Management Decision,
Vol. 36 No. 2, pp. 63-76.
Bontis, N. (1998). Intellectual capital: an exploratory study that develops measures and models. Management Decision,
vol.36, ,2.:63-76.
Bontis, N., Chua, W. and Richardson, S. (2000), “Intellectual capital and business performance inMalaysian industries”,
Journal of Intellectual Capital, Vol. 1 No. 1, pp. 85-100.
Chen, MC, Cheng, SJ, & Hwang, Y. (2005). An empirical investigation of the relationship between intellectual capital and
firm’s market value and financial performance”, Journal of Intellectual Capital, vol. 6, no. 2, pp.
Dimitrios, M.,Dimitrios,C. Charalampos,T,(2011). The impact of intellectual capital on firms market value and financial
performance. Journal of intellectual capital,Vol,12No, 1.
Dominique, Talia, A. (2009).An Empirical Research on the Relationship between Intellectual Capital and Corporate
Financial Performance on Indonesian Listed Companies. Jl. Hang Liker 1 No. 6 Jakarta 12120, Indonesia.
169
Applied mathematics in Engineering, Management and Technology 2 (3) 2014
G. Sajadi Khah et al
Edvinsson, L., Sullivan, P.H. (1996). Developing a Model for Managing Intellectual Capital,European Management
Journal, Vol.14,No,4.
Emam, S. (2010). Effective Factors on Investing in Tehran Stock Exchange. Accounting Knowledge. N. 164.
Fahimi Doab, R. (2005). Studying the degree of Importance of Effective Factors on the behavior of usual stock Investors in
the Security Stock Hall of Meshad and its Comparative comparison with the behavior of Investors in Tehran Security Stock
Hall. MA Thesis, Alzahra University.
Firer, S. and Williams, S.M. (2003), “Intellectual capital and traditional measures of corporate performance”, Journal of
Intellectual Capital, Vol. 4 No. 3, pp. 348-60.
Garcia , E ,(2007), "The use of intellectual capital information in investment decisions An empirical study using analyst
reports", The International Journal of Accounting, 42
Kalyta,Paul, Intellectual Capital, Corporate Governance, and Firm value, WWW.SSRN.COM,2011.
Lari Dasht Bayaz, A. (2010). Assessing the Effect of the Disclosure of Non-financial Information on the Decisions of
Investors, MA Thesis, Ferdousi Meshad University.
Madhoushi, M. (2009). Measuring Intellectual Capital and Surveying its Relation with Firms’ Returns Financial.
Accounting And Auditing Survey, Issue 57.
Mavridis, D.G. (2004), “The intellectual capital performance of the Japanese banking sector”, Journal of Intellectual
Capital, Vol. 5 No. 1, pp. 92-115.
Mirtalee, M. A. (2011). Assessing the amount of traders’ Reliance of Tehran Stock Exchange to intellectual capital
information in investment Decisions, MA thesis, Islamic Azad University of Arak.
Pew Tan H., Plowman D., Hancock P(2007). Intellectual capital and financial returns of companies. Journal of Intellectual
Capital. 8(1): 76-95. (www.emeraldinsight .com/1469-1930.htm).
Pulic, a ,( 2000) ,"VAIC – an accounting tool for IC management" ,international journal of technology management, 20/58:702/714
Seragi ,H, Anvari rostami, A.(2005). Survey the effect of intellectual capital on the market value of companies listed in
Tehran Stock Exchange. Accounting and Auditing Studies, vol39, No7, PP49-62.
Sveiby, K. (2000), “Intellectual capital and knowledge management”, available at: www.sveiby.
com.au/BookContents.html (accessed 2 June 2009).
Sveiby, K. (2001), “Methods for measuring intangible assets”, available at: www.sveiby.com.au/ BookContents.html
(accessed 2 June 2009).
Vadiee, M. H. et al. (2012). Studying the effective financial criteria on the decision of investors in stock market,
Accounting Knowledge Journal, Year 3, N. 8, Pp: 151-171.
170