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Measuring role of IC in SMEs' profitability: evidence from India

Author

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  • Sushila Soriya
  • Ruhee Mittal
  • Anshu Lochab

Abstract

The purpose of this paper is to investigate the association between intellectual capital components and their interactions with profitability of Indian small and medium-sized enterprises (SMEs). The profitability is measured by return on assets (ROA), return on equity (ROE) and business profitability (BP). The sample consists of the 345 SMEs listed on National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) of India. During the initial screening of data a series of diagnostic test were carried out to identify the problems of heteroscedasticity, autocorrelation and endogenity. The two-step generalised method of moments (GMM) estimation is applied to study the association of intellectual capital components and their interactions with SME's profitability. The results show that human capital and physical capital are the most influencing components of intellectual capital in the profitability of the SMEs in India. The interactions between human capital and structural capital have significant impact on ROA and BP. Through this study, a novel attempt is made to examine the importance of intellectual capital and its components in small business of India. This will be useful for the policymakers, entrepreneurs and owners of small business to determine the important physical, human and structural capital for improving the profitability of their firms.

Suggested Citation

  • Sushila Soriya & Ruhee Mittal & Anshu Lochab, 2022. "Measuring role of IC in SMEs' profitability: evidence from India," International Journal of Learning and Intellectual Capital, Inderscience Enterprises Ltd, vol. 19(6), pages 584-607.
    • Handle: RePEc:ids:ijlica:v:19:y:2022:i:6:p:584-607
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