Value-added intellectual capital and financial performance: evidence from Mauritian companies

Abstract

Purpose

The purpose of this paper is to empirically assess the impact of value-added intellectual capital (VAIC) on the financial performance (FP) of companies in Mauritius.

Design/methodology/approach

The research uses a dynamic panel vector error correction model (PVECM) which simultaneously allows for endogeneity and causality issues among the variables used.

Findings

The results show that VAIC enhances corporate FP, with a reported lower effect in the short run as compared to the long run. Other important determinants of firm’s performance are asset turnover, capital turnover and firm’s size. Leverage, on the other hand, is observed to be performance reducing in nature. FP of the companies is also a significant determinant of VAIC, implying reverse causal effects exist between the two variables of interest, namely, VAIC and FP.

Research limitations/implications

The study can be enhanced by doing an industry-specific comparison of the impact of VAIC on FP for more insights.

Practical implications

It is recommended that managers pay more attention to the role of firms’ stock of tangible and intangible assets, as this has a positive impact on firms’ FP. Also, the results may help to increase awareness of the importance of effective intellectual capital (IC) management within an organization. More so, as demonstrated by Ståhle et al. (2011), VAIC indicates the efficiency of the company’s labor and capital investments within firms in Mauritius. This study may, therefore, enable Mauritian firms to measure their IC efficiency and develop policies to promote and improve upon their intellectual potential to enhance firm’s performance.

Originality/value

The main theoretical contribution of this paper relates to the assessment and conceptualization of the bi-directional relationship between VAIC and FP. It confirmed that there are self-reinforcing feedback effects between VAIC and FP. Methodologically speaking, this paper investigates the VAIC–FP nexus in a dynamic setting using a dynamic panel data framework, namely, a PVECM which also allows for additional insights into the short- and long-run effects.

Citation

Bhattu-Babajee, R. and Seetanah, B. (2022), "Value-added intellectual capital and financial performance: evidence from Mauritian companies", Journal of Accounting in Emerging Economies, Vol. 12 No. 3, pp. 486-506. https://doi.org/10.1108/JAEE-11-2020-0300