Nexus between intellectual capital and profitability of technology firms in Malaysia: the moderating effect of human capital efficiency / Shaira Arwine Shairi

The knowledge-based economy has raised the importance of intellectual capital or knowledge assets as the firm’s key resources in gaining and sustaining competitive advantage through various value creations that requires human intellects. In the past two decades, Malaysia has increasingly evolved into a knowledge-based economy. In this context, firms feel an increasing need to invest in intangibles that are generally not expressed in the balance sheet but on which the firms’ potential performance is focused. As the economy grows and evolves, scholars argue that inimitable and non-substitutable resources will become a source of competitive advantage, a source in value creation and act as a driver for firm growth which ultimately enhances firm performance, and these two characteristics are abundantly available in intellectual capital. Although, the importance of intellectual capital seems to be theoretically supported, particularly in financial institutions involving banks and finance, but the empirical findings show inconsistent results, for instance, in the technology industry. This study aims to investigate the nexus between intellectual capital and profitability of technology firms in Malaysia with moderating effect of human capital. Intellectual capital is measured using the Modified Value-Added Intellectual Coefficient model (MVAIC) and profitability is proxy by return on asset and return on equity. The study uses panel data investigation based on usable data of 32 technology firms listed on the main market of Bursa Malaysia and the study covers a period of seven years from 2013 to 2019. The findings of the study suggest that intellectual capital has a significant effect on profitability, whereas human capital efficiency and capital employed efficiency positively influence the profitability of technology firms. It is noted that structural capital efficiency and relational capital efficiency reveal insignificant association. However, the introduction of the moderating variable moderates the impact of structural capital and relational capital on profitability and improves the explanatory power of the model. The findings confirm that intellectual capital is an important driver of profitability, therefore firms and government should stimulate investments in developing intellectual capital for enhanced profitability and economic growth. The study investigates one country and one industry, thus, limit the generalisation of the findings.