The Importance of Intellectual Capital for Firm Performance: Evidence from Australia

This study investigates the dynamic relationship between intellectual capital (IC) and firm performance (FP) through system generalised methods of moments, when previous studies produced divergent results based on static OLS or fixed-effects estimations. Based on 571 listed firms in Australia for the period of 2005-2014 (5518 firm-years) this study reveals that IC efficiency is positively significant with ROA and ROE - which endorses resource-based theory. Further analysis shows that human capital, structural capital and physical capital are also significant and confidently endorse resource-dependency and organisation-learning theories. The findings of this study are vital for stakeholders such as management, shareholders and potential investors to understand the role of IC for FP. Moreover, the findings are particularly important for policy-setters to highlight the importance of IC and develop a systematic framework for IC disclosure. This study also opens new avenues for future research to consider the dynamic nature of the IC-FP relationship and account for endogeneity. This study investigates the impact of intellectual capital efficiency on firm performance in Australia. The dynamic panel data estimation findings support resource-based, resource-dependency and organisation-learning theories. These findings are important for policy-setters to emphasise and enhance intellectual capital disclosure. The results are also important for management and shareholders to evaluate investments in intangibles.