IMPACT OF INVESTMENT IN INTELLECTUAL CAPITAL ON FINANCIAL PERFORMANCE OF PSX LISTED NON-FINANCIAL FIRMS; A PANEL DATA ANALYSIS INVESTIGATION

Purpose – This study investigates the impact of investment in intellectual capital on financial performance of listed Pakistan Stock Exchange (PSX) non-financial firms during the period of 2011 to 2015. Methodology / Sample – Panel data analyses are applied to examine the effect of intellectual capital on non-financial firm's financial performance. Simple random sampling is used to choose the sample for the study. Panel data of 86 firms is collected for the period of five yeas i.e. 2011-2015. So, there were 430 observations for the collected data. Findings – “Results of the study, give the conclusion in a fashion that value added intellectual capital (VAIC) and its components i.e. capital employed efficiency (CEE) human capital efficiency (HCE) and structural capital efficiency (SCE) are positively correlated with four measures of financial performance i.e. return on assets (ROA), return of equity (ROE), return on capital employed (ROCE) and earnings per share (EPS). It is also found structural capital efficiency gives higher impact on nonfinancial firm's financial performance as compared to other two components of IC i.e. capital employed efficiency and human capital efficiency.” Practical Implications – “Corporate managers, board of directors, shareholders and all other stakeholders can use this study to focus not only on the tangible assets of the firms but also the intangible assets of the firms. They can also capture the importance of intellectual capital efficiency, and its impact on financial performance. Furthermore, these stakeholders can focus on the most important component of IC i.e. capital employed efficiency (CEE).”