A study of causality between disintegrated intellectual capital and firm performance

This paper aims to provide the new and unique way to analyze the factors which cause Intellectual Capital (IC) and its impacts on firm’s performance. The data is obtained from 41 Chinese companies listen in Shanghai Stock Exchange Company from 2005 to 2011The empirical technique adopted to investigate this research is also unprecedented. This study uses Vector Auto-Regression (VAR) model on panel data structure to analyze the relationship between disaggregate intellectual resources and its impacts on the profitability at the firm level. The diverse estimation technique is used which covers both cross-sectional and time behavior of data. The variety of empirically tools; unit root, co-integration and granger causality tests are applied respectively to validate the hypothesis. The overall results confirm the hypothesis whereas, in the light of the results of the descriptive statistics, the low value of SCE shows that the Chinese high-tech companies are not investing enough as compared to the other components of intellectual capital as compare to HCE and CEE. The results from the short run causality test based on VECM signify bidirectional causality between ROE and HCE and unidirectional causality from HCE to SCE and CEE to SCE. The results of the data analysis provide useful implications for the theory of intellectual capital. The results indicate that the presence of intellectual capital causes a firm to attain better performance.