The Impact of Intellectual Capital on Company‘s Financial Performance: a Study on Insurance Industry of Australia
The purpose of this paper is to scrutinise the role of intellectual capital (IC) and its relationship with firm’s financial performance. Most of the previous studies showed a positive relationship of IC and firm’s performance. Also,prior studies revealed that assessing the value of IC elements have different measures. One common method is the Pulic model which was formulated by Ante Pulic in 2000. Moreover, certain variables were considered to assess the relationship. Independent variables are physical capital coefficient (VACA); human capital coefficient (VAHU); and structural capital coefficient (STVA) while dependent variable is Return on Assets (ROA) as one of the measure of firm’s profitability. Also, control variables such as firm size, leverage and return on equity are considered. To analyse the relationship of the variables certain statistical techniques were employed such descriptive statistics and regression analysis (partial least squares method). To address the purpose of this paper, two questions were formed. First question is about relationship between the components of VAICTM coefficient(capital employed, human capital and structural capital) and firm’s profitability. Secondly, relationship between VAICTM coefficient and firm’s profitability. The report utilised secondary data from of six Australian insurance companies listed in ASX for a five – year period starting from 2013-2017. This study revealed a positive relationship between the components of VAICTM coefficient(capital employed, human capital and structural capital) and firm’s profitability. This means Australian insurance firms need to concentrate on all three elements of VAICTM to improve firm’s performance. Also, positive relationship between VAICTM coefficient and firm’s profitability was confirmed. This implies that proper management of IC aids to maximize the return to stockholders through increase in the bottom line of business. The result of this study is important to various group such as stockholders, managers, policy makers, accountants and potential investors.
Keywords - Australia, Financial performance, Insurance industry, Intellectual capital.