Intellectual Capital, Innovation and Firm Performance of Pharmaceuticals: A Study of the London Stock Exchange

Shahid Amin () and Shoaib Aslam ()
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Shahid Amin: Department of Management Sciences, The Islamia University of Bahawalpur, Pakistan
Shoaib Aslam: Faculty of Management Sciences, The University of Lahore, Pakistan

Journal of Information & Knowledge Management (JIKM), 2017, vol. 16, issue 02, 1-20

Abstract: The objective of this study is to explore the empirical structural links among intellectual capital (IC), innovation and firm’s financial performance, furthermore, the impact of IC and innovation on firm’s financial performance has also been measured. Value added intellectual coefficient model (VAIC) has been used for the measurement of IC. Innovation is measured through research and development (R&D), products development and products in pipeline, whereas, financial performance is measured through traditional financial measures such as return on assets (ROA), return on equity (ROE), earnings per share (EPS), assets turnover ratio (ATO) and market-to-book ratio (MB). The study was based on secondary data, and it has been collected from the published annual reports of listed pharmaceutical firms in London Stock Exchange. The research was carried for the three year period of 2012–2014 and our sample consists of 207 firm-year observations. Structural Equation Modelling (SEM) technique is used to address cause–effect relationships among endogenous and exogenous constructs. Empirical results of SEM analysis support that IC and its components have positive and significant impact on innovation and firms’ financial performance. Moreover, innovation also has significant impact on firms’ financial performance. The study is valuable for the manager, decision makers and policy makers to recognise the value of IC and its philosophy to obtain and sustain competitive advantage through innovation.

Keywords: Intellectual capital; innovation; financial performance; pharmaceutical; research and development; structural equation modelling; partial least square; London stock exchange (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (11)

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DOI: 10.1142/S0219649217500174

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