Does Intellectual Capital Influence Firms' Financial Performance? Evidence from Non-Listed, Export-Oriented Manufacturing Firms In Sri Lanka

Abstract

The concept of intellectual capital is rapidly expanding within the academic field, and it is playing a dominant role in the areas of accounting and management. Based on this scenario, Empirical studies illustrate varied findings related to intellectual capital and firms’ financial performance. However, there is no general conclusion related to this aspect. Therefore, this paper examines the impact of intellectual capital on financial performance based on non-listed, export-oriented manufacturing firms in Sri Lanka over the period from 2011 to 2020. Annual sales are used as a proxy for financial performance, while following the "Public Model", a value-added intellectual capital coefficient is calculated, which is used as a proxy for the intellectual capital. A deductive approach is employed using firm-level panel data, and the Hausman specification test suggested the random effect regression model as the best-fit model. As per the results of this study, value-added intellectual capital significantly influences sales. Further, two components of the value-added intellectual capital, namely, the human capital coefficient and the capital employed efficiency coefficient, significantly influence sales. However, the remaining components of the structural capital coefficient do not influence sales. The empirical findings of this study may be helpful for firm managers and policymakers to craft strategic decisions highlighting the sales of export-oriented manufacturing firms.