Board governance, intellectual capital and firm performance: Importance of multiplicative effects

Abstract

Purpose

The purpose of this paper is to examine the relationship between the combined (multiplicative) effect of board governance and intellectual capital (IC) on firm performance.

Design/methodology/approach

This study is cross-sectional and follows a positivist view of testing pre-specified hypotheses. The study uses a respondent sample of 128 service firms operating in Kampala, directors or managers are the unit of enquiry. Structural equation modelling with analysis of moment structures is used for statistical modelling.

Findings

Board governance and IC make significant contributions to firm performance. However, their interaction is a significant booster to services sector firms’ performance in Uganda.

Research limitations/implications

Although an attempt is made at controlling for common method variance in particular by proactive instrument design and testing, and usage of the Harman single factor analytical technique, its influence may not have been dealt away completely owing to failure to obtain a plausible common marker variable. Well, it is meaningful to identify the significant positive multiplicative effects of board governance and IC so as uncover what is needed in service firms to improve their performance.

Originality/value

Studies explaining firm performance via board governance only and which ignored the synergistic effects of board governance and IC have often missed the reality that the performance of the firm can significantly be improved by means of leveraging IC while simultaneously calling for effective board governance.

Citation

Nkundabanyanga, S.K. (2016), "Board governance, intellectual capital and firm performance: Importance of multiplicative effects", Journal of Economic and Administrative Sciences, Vol. 32 No. 1, pp. 20-45. https://doi.org/10.1108/JEAS-09-2014-0020