Intellectual Capital and Its Effect on the Financial Performance of Pharmaceutical Companies

Document Type : Research Paper

Authors

1 Assistant Professor, Faculty of Administrative sciences and Economics, Arak University, Arak, Iran.

2 Assistant Professor, Boukan Branch, Islamic Azad University, Boukan, Iran.

3 M.A in Financial Engineering and Management Risk, Arak University, Arak, Iran.

10.22103/jdc.2022.19019.1207

Abstract

Objective: Currently, knowledge is the key factor in development in its various dimensions. Organizations in different societies (with different intensity) by understanding the importance of knowledge, have moved in the direction of using it more. Intellectual capital plays an important role in organizational innovation and knowledge accumulation in the organization and and has a vital impact to enhance business financial performance. The importance of intellectual capital is much greater in knowledge-based companies. The pharmaceutical industry is one of the knowledge-based industries and intellectual capital in these companies has been in the center of researchers' attention. Therefore, it is very important to examine the position of intellectual capital in this industry and its effect on financial performance. The purpose of this research is to calculate the intellectual capital for pharmaceutical companies listed to the Tehran Stock Exchange (TSE) for the years 2011 to 2020 and to investigate the impact of intellectual capital on financial performance.
Method: According to the access to the required data, 26 pharmaceutical companies were selected. Relying on the theoretical foundations and previous studies, the present research has selected the most widely used intellectual capital calculation method which was first presented and used by Pulic (1998 and 2004). Based on the data of 26 pharmaceutical companies listed on the Tehran Stock Exchange in the period 2011 to 2020, the intellectual capital of pharmaceutical company has been measured by the Value added intellectual coefficient  method (VAIC). Panel regression analysis has been used to analyze the impact of intellectual capital on the financial performance (return on assets as an indicator of financial performance) of selected pharmaceutical companies. In this regard, after the panel stationary test to avoid spurious regression and checking the establishment of classical hypotheses, panel regression equations were estimated by FGLS (Feasible generalized least squares) method due to the variance heterogeneity of errors and serial autocorrelation of errors. For data analysis, Eviews and Stata software were used.
Results: Based on the results of calculations, the average Value added intellectual coefficient for Darou Pakhsh Pharmaceutical Company, Daru Pakhsh Raw Materials and Alborz Daru Company are in the first ranks, and Industrial & Chemical Sina Company has the lowest value. The intellectual capital performance of the selected Iranian pharmaceutical companies is generally affected by human capital efficiency. Between 2011 and 2020, Value added intellectual coefficient has been up for most of selected companies. To check the validity of the hypothesis of convergence between selected pharmaceutical companies, the convergence regression (Growth rate of intellectual capital as a function of the amount of intellectual capital in year 2011) has been estimated. The sign of the convergence regression coefficient is negative but not significant. As a result, it does not confirm the existence of convergence of intellectual capital between these companies. The results of the Levin, Lin, and Chu (LLC) panel unit root test for all variables indicate that all variables used in panel regressions are stationary at level. The results of Chow test and Hausman test for each of the panel regression confirmed the fixed effects method. The results of the serial autocorrelation test of panel regression errors shows the existence of serial autocorrelation between regression errors, and also the variance heterogeneity test of panel regression errors shows the non- heterogeneity of variance of regression errors. According to the results of panel regression estimation, the efficiency of capital employed, the efficiency of human capital and the efficiency of structural capital have a positive and significant effect on the financial performance of selected pharmaceutical companies. The efficiency of capital employed has a greater impact on the financial performance of selected pharmaceutical companies. Company size and financial leverage have a negative and significant effect on the profitability of selected pharmaceutical companies.
Conclusion: Based on the results of panel regression analysis, it can be concluded that pharmaceutical companies should use their financial and physical capital if they wish to reach a higher profitability level. Although the most important assets of companies are their employees, the low human capital ratio of Iranian pharmaceutical companies does not confirm this. In addition to paying attention to the proper use of physical and financial assets, it is necessary for pharmaceutical companies to include issues such as employee training, increasing employee skills, and creating various incentives to motivate employees to improve efficiency and create creativity in performance. Considering the nature of pharmaceutical companies, which are among knowledge-based companies, to improve the level of human capital efficiency and increase its impact on financial performance, constructive and continuous communication with universities and scientific institutions is suggested to create dynamics in the activity.

Keywords

References

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Journal of Development and Capital
Volume 7, Issue 2 - Serial Number 13
December 2022
Pages 157-172

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History

  • Receive Date: 13 February 2022
  • Revise Date: 26 May 2022
  • Accept Date: 14 June 2022

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