IDEAS home Printed from https://ideas.repec.org/a/lje/journl/v13y2008i2p81-98.html
   My bibliography  Save this article

Impact of Intellectual Capital Efficiency on Profitability (A Case Study of LSE25 Companies)

Author

Listed:
  • Muhammad Abdul Majid Makki

    (Islamia University of Bahawalpur, Pakistan.)

  • Suleman Aziz Lodhi

    (National College of Business Administration & Economics, Lahore, Pakistan.)

Abstract

The aim of this study is to examine the relationship between intellectual capital efficiency and the firm's profitability. The importance of intellectual capital (IC) and the related philosophy of the knowledge economy have captured the attention of researchers and business enterprises in the World Trade Organization (WTO) era. IC is widely recognized as a tool that is critical to running a successful business in a highly competitive environment. Various models have been introduced to measure the numerous facets of IC, including the Skandia navigator, Tobin's Q, and value added intellectual coefficient (VAIC). This article examines the role of IC efficiency in the firm’s net profit using the VAIC developed by Ante Pulic (1998). It also investigates its correlation with the firm’s profitability, using regression models. A five-year data set for Lahore Stock Exchange Index companies (LSE-25) was obtained from audited financial reports, and used to calculate human capital, structural capital, and capital-employed efficiency of companies in different industrial sectors. The results obtained using multiple regression analysis supports the argument that IC efficiency contributes significantly to the firm's profitability. Practically, IC efficiency can be used as a benchmark and strategicindicator to direct financial and intellectual resources in the right direction, i.e., to enhance the firm’s ultimate corporate value. It can also be developed as a management tool to create a sustainable comparative advantage in the competitive global knowledge economy. The study is a pioneering attempt to measure the impact of IC efficiency on net profit using cross sectional time series data.

Suggested Citation

  • Muhammad Abdul Majid Makki & Suleman Aziz Lodhi, 2008. "Impact of Intellectual Capital Efficiency on Profitability (A Case Study of LSE25 Companies)," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 13(2), pages 81-98, Jul-Dec.
    • Handle: RePEc:lje:journl:v:13:y:2008:i:2:p:81-98
    as

    Download full text from publisher

    File URL: http://121.52.153.179/JOURNAL/vol13-no2/5%20Makki_and_Lodhi_EDITED.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. World Bank, 2004. "Sri Lanka : Development Policy Review," World Bank Publications - Reports 14577, The World Bank Group.
    2. Rashid Amjad, 2006. "Why Pakistan Must Break-into the Knowledge Economy," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 11(Special E), pages 75-87, September.
    3. Rukhsana Kalim & Suleman Aziz Lodhi, 2002. "The Knowledge-based Economy: Trends and Implications for Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 41(4), pages 787-804.
    4. World Bank, 1998. "World Development Report 1998/1999," World Bank Publications - Books, The World Bank Group, number 5981, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Snezhana Hristova & Dusica Stevceska-Srbinovska, 2019. "MANAGING TECHNOLOGY IN MACEDONIAN SMEs CONTEXT: PERCEPTIONS, PRACTICES AND CHALLENGES," JOURNAL STUDIA UNIVERSITATIS BABES-BOLYAI NEGOTIA, Babes-Bolyai University, Faculty of Business.
    2. Erika Kulcsar & Claudia-Izabela Crenganes, 2019. "The End Product Of The Imagine Dragons’ And Lady Gaga’S Music, Or The Nature Of Marketing Mix In The Music Industry," JOURNAL STUDIA UNIVERSITATIS BABES-BOLYAI NEGOTIA, Babes-Bolyai University, Faculty of Business.
    3. N. Kanchana & R. R. Raja Mohan, 2017. "A Review of Empirical Studies in Intellectual Capital and Firm Performance," Indian Journal of Commerce and Management Studies, Educational Research Multimedia & Publications,India, vol. 8(1), pages 52-58, January.
    4. Abdul Azeez Badir Alnidawi & Fatimah Musa Omran, 2016. "Learning Organization Impact on Internal Intellectual Capital Risks: An Empirical Study in the Jordanian Pharmaceutical Industry Companies," International Business Research, Canadian Center of Science and Education, vol. 9(10), pages 176-185, October.
    5. Zakaria Nejjari & Hanane Aamoum, 2023. "The Impact of Intellectual Capital on Profitability, Market Value, Productivity, and Return on Equity: Empirical Evidence from Moroccan ICT Firms," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 14(2), pages 1734-1748, June.
    6. Stefano Fontana & Daniela Coluccia & Silvia Solimene, 2019. "VAIC as a Tool for Measuring Intangibles Value in Voluntary Multi-Stakeholder Disclosure," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 10(4), pages 1679-1699, December.
    7. Mohammad Kazem Emadzadeh & Nadia Afzali & Asiya Bagheri & Mahboobe Rahimpoor & Fatemeh Ezadi & Mojgan Rahmani, 2013. "Effect of Intellectual Capital on Firm Performance," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(2), pages 98-103, April.
    8. Lassaad Ghachem & Costinel Dobre & Reza Etemad-Sajadi & Anca Milovan-Ciuta, 2019. "The Impact Of Cultural Dimensions On The Perceived Risk Of Online Shopping," JOURNAL STUDIA UNIVERSITATIS BABES-BOLYAI NEGOTIA, Babes-Bolyai University, Faculty of Business.
    9. Tajudeen Lawal & Daniya Adeiza Abdulazeez & Mohammed Yabagi Ibrahim, 2019. "Human Capital Efficiency And Profitability Of Quoted Integrated Oil And Gas Companies In Nigeria," JOURNAL STUDIA UNIVERSITATIS BABES-BOLYAI NEGOTIA, Babes-Bolyai University, Faculty of Business.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. William Easterly & Ross Levine, 2002. "It´s Not Factor Accumulation: Stylized Facts and Growth Models," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.),Economic Growth: Sources, Trends, and Cycles, edition 1, volume 6, chapter 3, pages 061-114, Central Bank of Chile.
    2. Stiglitz, Joseph E., 2002. "New perspectives on public finance: recent achievements and future challenges," Journal of Public Economics, Elsevier, vol. 86(3), pages 341-360, December.
    3. Yiping Huang & Jian Chang & Prema-Chandra Athukorala & Sisira Jayasuriya, 2013. "Economic Policy Shifts in Sri Lanka: The Post-Conflict Development Challenge," Asian Economic Papers, MIT Press, vol. 12(2), pages 1-28, Summer.
    4. Debraj Ray & Joan-Maria Esteban, 2015. "Inequality and Public Resource Allocation," Working Papers 47, Barcelona School of Economics.
    5. Ram Pratap Sinha, 2009. "Liberalisation of Financial Markets: The Developing Country Experience," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 34(2), pages 274-290, May.
    6. De la Torre, Augusto & Schmukler, Sergio, 2007. "Emerging Capital Markets and Globalization: The Latin American Experience," IDB Publications (Books), Inter-American Development Bank, number 349.
    7. Chitiga, Margaret & Kandiero, Tonia & Mabugu, Ramos, 2005. "A Computable General Equilibrium Micro-Simulation Analysis of the Impact of Trade Policies on Poverty in Zimbabwe," Conference papers 331388, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    8. Auriol, Emmanuelle & Dahmani-Scuitti, Anaïs, 2025. "Decentralization in Autocraties," European Economic Review, Elsevier, vol. 172(C).
    9. Grant Boyle, 2002. "Putting context into ICTs in international development: an institutional networking project in Vietnam," Journal of International Development, John Wiley & Sons, Ltd., vol. 14(1), pages 101-112.
    10. Jalan, Jyotsna & Ravallion, Martin, 2001. "Behavioral responses to risk in rural China," Journal of Development Economics, Elsevier, vol. 66(1), pages 23-49, October.
    11. Kaushalesh Lal, 2007. "E-business and Manufacturing Sector: A Study of Small and Medium-sized Enterprises in India," Palgrave Macmillan Books, in: Information and Communication Technologies in the Context of Globalization, chapter 2, pages 16-33, Palgrave Macmillan.
    12. Jordan Shan & Jianhong Qi, 2006. "Does Financial Development 'Lead' Economic Growth? The Case of China," Annals of Economics and Finance, Society for AEF, vol. 7(1), pages 197-216, May.
    13. Ms. Sweta Chaman Saxena & Meenakshi Rishi & Ms. Valerie Cerra, 2005. "Robbing the Riches: Capital Flight, Institutions, and Instability," IMF Working Papers 2005/199, International Monetary Fund.
    14. Handa, Sudhanshu & Simler, Kenneth, 2000. "Quality or quantity?," FCND briefs 83, International Food Policy Research Institute (IFPRI).
    15. Aristovnik, Aleksander, 2012. "The impact of ICT on educational performance and its efficiency in selected EU and OECD countries: a non-parametric analysis," MPRA Paper 39805, University Library of Munich, Germany.
    16. Mahfuz Ashraf & Jo Hanisch & Paul Swatman, 2009. "ICT intervention in the ‘Chandanbari’ Village of Bangladesh: Results from a field study," Information Systems Frontiers, Springer, vol. 11(2), pages 155-166, April.
    17. Abu Siddique & E. A. Selvanathan & Saroja Selvanathan, 2011. "Remittances and Economic Growth: Empirical Evidence from Bangladesh, India and Sri Lanka," Journal of Development Studies, Taylor & Francis Journals, vol. 48(8), pages 1045-1062, October.
    18. Awan, Abdul Ghafoor & Yaqoob, Robina, 2023. "Economic value of introducing technology to improve productivity: An ARDL approach," Innovation and Green Development, Elsevier, vol. 2(3).
    19. Jianfa Shen, 2012. "Urban development and competitiveness in Hong Kong: opportunities and challenges of a changing relation with mainland China," Chapters, in: Peter Karl Kresl & Daniele Ietri (ed.), European Cities and Global Competitiveness, chapter 9, pages 151-167, Edward Elgar Publishing.
    20. Bedi, Arjun S., 1999. "The Role of Information and Communication Technologies in Economic Development: A Partial Survey," Discussion Papers 279848, University of Bonn, Center for Development Research (ZEF).

    More about this item

    Keywords

    Knowledge Economy; Intellectual Capital; Value Added; VAIC; LSE-25.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C59 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Other

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lje:journl:v:13:y:2008:i:2:p:81-98. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Shahid Salahuddin (email available below). General contact details of provider: https://edirc.repec.org/data/lsecopk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.