Intellectual Capital and Firm Performance: An Indian Evidence

The rapidly changing world economies from industrial and manufacturing sector to knowledge based service sector has shifted the focus of investors more towards the reporting of intangible assets like intellectual capital. This phenomenon has got wide attention in developed countries but a very slight attention in developing countries. The basic purpose of this paper is to investigate the nature and extent of intellectual capital disclosure in the Top 30 companies (as per market capitalization) listed on the Bombay Stock Exchange over a period of 5 years i.e. 2010-2014and to analyze the relationship of intellectual capital with the firms' financial performance. The study uses content analysis of annual reports of these 30 companies over the study period to investigate pattern of disclosure practices of companies. The results of content analysis revealed that the disclosure of intellectual capital by the Indian Companies is very low (i.e. 20%). The External Structure is the most reported category with an intellectual capital disclosure of almost 46% in this category. There is slight but not significant increase in the disclosure rate of the companies over the years. Most of the intellectual capital information disclosed in annual reports of the companies is in qualitative form (i.e. 77%). The study uses VAIC method to measure intellectual capital and further uses panel regression analysis incorporating Fixed Effects to find the association of intellectual capital with the firms' performance using market value as the financial indicator. The results of the regression analysis reveal that there is a significant positive impact of intellectual capital on the firms' financial performance.