Restricted accessResearch articleFirst published online 2025
Assessing the Impact of Intellectual Capital on Firms’ Profitability: Evidence from the Indian Information Technology Sector Using Dynamic Panel System GMM Approach
The present study focuses on how intellectual investment influences the financial success of companies in India’s rapidly evolving information technology (IT) sector. Using data from 158 IT companies between 2016 and 2023, the study uses dynamic panel estimation techniques. The modified value-added intellectual coefficient model is used to analyse the key performance proxies such as return on assets, net profit margin and return on net worth. The random effect model and fixed effect model are used to analyse the effects of relational and structural capital results, which exhibit weaker and ineffective impact, while capital employed efficiency and human capital efficiency are significant factors that affect firms’ profitability by using System GMM, which encountered endogeneity issues. In today’s highly competitive and knowledge-driven IT sector, the findings highlight how crucial it is to nurture human talent and use resources efficiently. These insights can guide managers, investors and policymakers in making smart investments in intellectual capital that drive lasting value.
AfrozeR. (2011). Intellectual capital and its influence on the financial performance. ASA University Review, 5(1), 161–173.
2.
ArellanoM., & BoverO. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29–51. https://doi.org/10.1016/0304-4076(94)01642-D
3.
BaltagiB. H. (2008). Econometric analysis of panel data (4th ed.). John Wiley & Sons.
4.
BlundellR., & BondS. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143. https://doi.org/10.1016/S0304-4076(98)00009-8
5.
BontisN. (1996). There’s a price on your head: Managing intellectual capital strategically. Business Quarterly Summer, 60(4), 41–47.
6.
BontisN., Chua Chong KeowW., & RichardsonS. (2000). Intellectual capital and business performance in Malaysian industries. Journal of Intellectual Capital, 1(1), 85–100. https://doi.org/10.1108/14691930010324188
7.
BontisN., CiambottiM., PalazziF., & SgroF. (2018). Intellectual capital and financial performance in social cooperative enterprises. Journal of Intellectual Capital, 19(4), 712–731. https://doi.org/10.1108/JIC-03-2017-0049
8.
BontisN., Janošević, S., & DženopoljacV. (2015). Intellectual capital in Serbia’s hotel industry. International Journal of Contemporary Hospitality Management, 27, 1365–1384. https://doi.org/10.1108/IJCHM-12-2013-0541
9.
ChenM. C., ChengS. J., & HwangY. (2005). An empirical investigation of the relationship between intellectual capital and firms’ market value and financial performance. Journal of Intellectual Capital, 6(2), 159–176. https://doi.org/10.1108/14691930510592771
10.
Cummins Inc. (2024). Human capital management report. https://www.cummins.com/sites/default/files/2024-06/human-capital-management-report-2024.pdf
11.
DeznopolsacV., YaacoubC., ElkanjN., & BontisN. (2017). Impact of intellectual capital on corporate performance: Evidence from Arab region. Journal of Intellectual Capital, 18, 884–903. https://doi.org/10.1108/JIC-01-2017-0014
12.
DiyantyV., Dwi RestutiM., DiyantiV., & ShaukiE. R. (2019). Intellectual capital and firm performance: Applying a modified value-added coefficient. Proceedings of the Asia-Pacific Business and Economics Conference, 89, 114–123. https://doi.org/10.2991/apbec-18.2019.16
13.
EdvinssonL., & MaloneM. S. (1997). Intellectual capital: Realizing your company’s true value by finding its hidden brainpower. Harper Business.
14.
GoyalA. M. (2013). Impact of capital structure on performance of listed public sector banks in India. International Journal of Business and Management Invention, 2(10), 35–43.
15.
GuptaK., GoelS., & BhatiaP. (2019). An analysis of intellectual capital and firms’ profitability: With reference to Indian IT companies. NMIMS Management Review, 37(2), 77–91.
16.
HsuL. C., & WangC. H. (2012). Clarifying the effect of intellectual capital on performance: The mediating role of dynamic capability. British Journal of Management, 23(2), 179–205. https://doi.org/10.1111/j.1467-8551.2010.00718.x
17.
InoueK., AdomiM., EfthimiouO., KomuraT., OmaeK., OnishiA., TsutsumiY., FujiiT., KondoN., & FurukawaT. A. (2024). Machine learning approaches to evaluate heterogeneous treatment effects in randomized controlled trials: A scoping review. Journal of Clinical Epidemiology, 176, 111538. https://doi.org/10.1016/j.jclinepi.2024.111538
18.
JoshiM., CahillD., SidhuJ., & KansalM. (2013). Intellectual capital and financial performance: An evaluation of the Australian financial sector. Journal of Intellectual Capital, 14(2), 264–285. https://doi.org/10.1108/14691931311323887
19.
KamathG. B. (2007). The intellectual capital performance of the Indian banking sector. Journal of Intellectual Capital, 8(1), 96–123. https://doi.org/10.1108/14691930710715088
20.
KamathG. B. (2015). Impact of intellectual capital on financial performance and market valuation of firms in India. International Letters of Social and Humanistic Sciences, 48(1997), 107–122. https://doi.org/10.18052/www.scipress.com/ilshs.48.107
21.
KamathG. B. (2019). Impact of intellectual capital on financial performance: Evidence from Indian firms. Journal of Intellectual Capital, 20(5), 784–806. https://doi.org/10.1108/JIC-11-2017-0156
22.
KhanA. M. (2018). An empirical study of the impact of intellectual capital on the financial performance of Indian IT sector. Journal of Corporate Finance Research/КорпоративныеФинансы, 12(1), 7–19. https://doi.org/10.17323/j.jcfr.2073-0438.12.1.2018.7-19
23.
KiantoA., RitalaP., SpenderJ.-C., & VanhalaM. (2014). The interaction of intellectual capital assets and knowledge management practices in organizational value creation. Journal of Intellectual Capital, 15. https://doi.org/10.1108/JIC-05-2014-0059.
24.
MaditinosD., ChatzoudesD., TsairidisC., & TheriouG. (2011). The impact of intellectual capital on firms’ market value and financial performance. Journal of Intellectual Capital, 12(1), 132–151. https://doi.org/10.1108/14691931111097944
25.
McKinsey Global Institute. (2023). Performance through people: Transforming human capital into competitive advantage. McKinsey & Company. https://www.mckinsey.com/mgi/our-research/performance-through-people-transforming-human-capital-into-competitive-advantage
26.
MohammadH. S., & BujangI. (2019). Performance of Malaysian financial firms: An intellectual capital perspective using MVAIC model. Asian Economic and Financial Review, 9(7), 752–765. https://doi.org/10.18488/journal.aefr.2019.97.752.765
27.
MosaviS. A., NekoueizadehS., & GhaediM. (2012). A study of relations between intellectual capital components, market value and finance performance. African Journal of Business Management, 6(4), 1396–1403. https://doi.org/10.5897/ajbm11.1466
28.
MukherjeeT., & SenS. S. (2019). Intellectual capital and corporate sustainable growth: The Indian evidence. Journal of Business Economics and Environmental Studies, 9(2), 5–15. https://doi.org/10.13106/jbees.2019.vol9.no2.5
29.
MurugesanS., VadivelT., ChinnaduraiK., & DhamotharanD. (2017). Intellectual capital: Its effect on financial performance of Indian public and private sector banks. Journal of Social Sciences, 3(2), 100–106.
30.
NadeemM., GanC., & CuongN. (2017). The importance of intellectual capital for firm performance: Evidence from Australia. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3001537
31.
NarwalK., & SoriyaS. (2012). IC performance of Indian pharmaceutical and textile industry. Journal of Intellectual Capital, 13(1), 120–137. https://doi.org/10.1108/14691931211196240
32.
PalK., & SoriyaS. (2012). IC performance of Indian pharmaceutical and textile industry. Journal of Intellectual Capital, 13(1), 120–137.
33.
SardoF., & SerrasqueiroZ. (2017). An European empirical study of the relationship between firms’ intellectual capital, financial performance and market value. Journal of Intellectual Capital, 18, 771–788. https://doi.org/10.1108/JIC-10-2016-0105
34.
ScafartoV., RicciF., & ScafartoF. (2016). Intellectual capital and firm performance in the global agribusiness industry: The moderating role of human capital. Journal of Intellectual Capital, 17(3), 530–552. https://doi.org/10.1108/jic-11-2015-0096.
35.
SmritiN., & DasN. (2018). The impact of intellectual capital on firm performance: A study of Indian firms listed in COSPI. Journal of Intellectual Capital, 19(5), 935–964. https://doi.org/10.1108/jic-11-2017-0156
36.
StewartT. A. (1997). Intellectual capital: The new wealth of organizations. Doubleday Books.
37.
TandonK., PurohitH., & TandonD. (2016). Measuring intellectual capital and its impact on financial performance: Empirical evidence from CNX nifty companies. Global Business Review, 17(4), 980–997. https://doi.org/10.1177/0972150916645703
38.
Times Group. (2024). TechGig Times report: India’s IT transformation. The Times Group.
39.
Toyota Tsusho Corporation. (2024). Human Capital Report. https://www.toyota-tsusho.com/english/sustainability/pdf/human_capital_report_en.pdf
40.
VitalisE. (2018). Effect of intellectual capital on performance of firms listed on Nigeria stock exchange. Research Journal of Finance and Accounting, 9(8), 138–150.
WooldridgeJ. M. (2010). Econometric analysis of cross section and panel data (2nd ed.). MIT Press.
43.
XuJ., & LiuF. (2020). The impact of intellectual capital on firm performance: A modified and extended VAIC model. Journal of Competitiveness, 12(1), 161–176. https://doi.org/10.7441/joc.2010.01.10
44.
YoundtM. A., SubramaniamM., & SnellS. A. (2004). Intellectual capital profiles: An examination of investments and returns. Journal of Management Studies, 41(2), 335–361.
45.
ZaefarianG., KadileV., HennebergS. C., & LeischnigA. (2017). Dealing with endogeneity bias: The generalized method of moments (GMM) for panel data. Industrial Marketing Management, 71, 69–78. https://doi.org/10.1016/j.indmarman.2017.11.010
