Intellectual Capital Efficiency and Firm Performance in Pakistan and Turkey: A Moderating Role of Industry Concentration

Abstract

In this modern era emerging economies are realising the importance of Intellectual Capital (IC) for firm performance to survive in competitive industries. The purpose of this study is to analyse the moderating role of industry concentration to explore the impact of three components of intellectual capital efficiency (ICE): Human Capital Efficiency (HCE), Structural Capital Efficiency (SCE) and Capital Employed Efficiency (CEE) on two measures of financial performance: Return on Asset (ROA) and Economic Value Added (EVA) of Pakistani and Turkish firms. Secondary data is collected from 193 Pakistani  and 177 Turkish firms listed on PSX and BIST respectively from the period of 2009 to 2019 based on their market capitalization. A panel regression analysis approach is used to identify the variables that significantly contribute to firm performance. Findings reveal that inclusion of industry concentration as a moderator positively significantly influences the relationship between and HCE and financial performance (ROA and EVA), CCE and financial performance (ROA and EVA), but negatively significantly influences the relationship between and SCE and financial performance (ROA and EVA) in Pakistani firms. These findings further reveal that in Turkish firms industry concentration positively significantly moderates the relationship between and HCE and financial performance (ROA), CCE and financial performance (ROA and EVA), but negatively significantly influences the relationship between and HCE and financial performance (EVA) as well as SCE and financial performance (ROA and EVA).This study advances the understanding of intellectual capital (IC) among academics and management and emphasises its role for creating value. The findings can assist stakeholders and policymakers in developing countries in effectively redistributing intellectual resources. In order to thrive and achieve success, firms must not only rely on physical resources, but also embrace contemporary strategies and policies that address industrial competitiveness.

Key words: Human Capital Efficiency (HCE), Structural Capital Efficiency (SCE), Capital Employed Efficiency (CEE), Firm Performance, Industry Concentration.