The Effects of Intellectual Capital on Firm’s Financial Performance: Evidence from the ACE Market of Bursa Malaysia

Abstract

Due to the undeniable importance of a Knowledge-Intensive Economy, intangible resources are still receiving attention. In the modern world, the challenges to organizations are the ability to translate the resources and capabilities into a competitive advantage. The ACE Market has faced inadequate investment in intellectual capital (IC). The continuousness of these problems will lead to unfavorable firm performance. In the long run, the firms could not afford to endure. Therefore, this study examined the influence of intellectual capital and financial performance of firms listed in the ACE Market of Bursa Malaysia. The data used were collected from the audited annual reports of 62 firms; the sample period was from 2009 to 2018. This study applied the Two-Step System Generalized Method of Moments (GMM) as an estimation method since it is suitable for data with small-time but large cross-sections. In addition, it has the competencies to solve the endogeneity problem. Intellectual capital was measured using the modified value-added intellectual coefficient (MVAIC) model, and financial performance was proxied by the return on asset (ROA). The empirical finding reveals that HCE tends to be the prime contributor to firm performance, and CEE increases the performance measured by ROA.