The effect of intellectual capital on firm performance: the mediating role of family management

Abstract

Purpose This study aims to investigate the effect of intellectual capital components on firms’ performance, and also examines the influence of the mediating role of family management on such a relationship. Design/methodology/approach The hypotheses are tested using structural equation modeling for a sample of 46 Jordanian service listed firms during 2014–2019. Findings The results indicate that intellectual capital efficiency is a key factor that enables firms to achieve higher financial performance and higher market value. Human capital efficiency has a significant positive effect on firms’ profitability as measured by return on assets and earnings per share. No evidence is shown to support that family management has a mediating role on the relationship between intellectual capital and firms’ performance. Practical implications The results indicate strong evidence of the important role of intellectual capital on firm performance. Accordingly, this study recommends that the managers of service firms should continue to enhance and improve the components of intellectual capital, especially investing more in the competencies and capabilities of employees, including their skills, education and training programs to achieve competitive advantage and ensure continued success in the future, and investors to pay special attention to the components of intellectual capital to predict the performance of the firm and be able to choose the best investment opportunities. Originality/value This study provides additional insights into the literature of both intellectual capital and family businesses by analyzing data from an emerging market.

The Role of Intellectual Capital in Firms’ Performance and Market Value: Evidence from Jordan

“…It ranged from 0 to 11.728 with a standard deviation of 1.656. This is close to the value of 1.10 found by Bataineh et al (2022).…”

“…Thus, hypothesis H2a, which posits that a firm's financial is positively associated with HCE is supported. This result is consistent with the result of Bataineh et al (2022) and Sardo and Serrasqueiro (2017), while it is inconsistent with ; Soewarno and Tjahjadi (2020) and Smriti and Das (2018) who find that HCE is not related to ROA. Our results suggest that as expenditure on employees increases, the financial performance of a company improves.…”

“…Regarding the dependent variable financial performance, measured by ROA, the average annual return earned by manufacturing and service firms in Jordan during the period of study was 5.47% of their total assets with a standard deviation of 7.53%. This is higher than the ratio indicated by Bataineh et al (2022) for service firms (ROA = 3.32) from 2014 to 2019. The lowest return on assets earned by individual companies was 0 and the highest return was 41.78% of total assets.…”

“…In addition, a positive association is shown between market performance and both HCE and SCE. Bataineh et al (2022) examine the link between VAIC components and P/BV, P/E, EPS, and ROA as a firm's performance. Data for forty-six Jordanian service firms listed on the Amman Stock Exchange (ASE) from 2014 to 2019 was analyzed.…”

“…Other studies indicate that human capital positively affects profitability, but it is not associated with market value. Bataineh et al (2022) indicate that Jordanian service sector firms' profitability, measured by return on assets, is positively and significantly affected by human capital efficiency. The same findings were found among ICT companies in Turkey, where HCE is the only sub-dimension of IC that positively affects ROA (Calisir et al, 2010).…”