Relationship between intellectual capital and corporate financial performance of firms in the non-financial sector industry: Empirical study in Indonesia

The purpose of this research is twofold: to understand the utilization of intellectual capital (IC) and its components-human capital (HC), structural capital (SC), relational capital (RC), and capital employed (CE)-on the process of value-added creation as measured financially for firms in the non-financial sector in Indonesia, and second, to explore the effect of IC across industries by using empirical evidence drawn from companies on the Indonesian Stock Exchange (IDX). The study uses a sample of 123 companies from 26 industries on the IDX from 2013 to 2016. The modified value-added intellectual coefficient (MVAIC) is used to measure the contribution of IC to the value creation process on the firm’s financial performance, such as profitability and corporate rate of return using proxy earnings before interest, tax depreciation, and amortization (EBITDA), NPM, return on assets (ROA), and return on earnings (ROE). The result entails several important points. First, IC significantly affects the financial performance of companies in Indonesia, although the influence of the IC components varies. Second, HC and relational capital (RC) are the most useful and significant components affecting corporate financial performance. Third, IC-intensive industries and low-IC industries have no distinction in the context of use and utilization of IC. The limitations of this study lie in the lack of measurement of the IC contribution using the MVAIC and the use of secondary data coming only from the Thomson Reuters Datastream database. This study has contributed to filling the gap of cross-industry IC research in Indonesia and enriches IC research using MVAIC.