An Empirical Investigation into the Behavior of Intellectual Capital

Intellectual Capital (IC) is recognized as the foundation of organizational success in the knowledge economy. In this respect, this study aims at investigating, empirically, the behavior of IC over the financial years 2000 to 2010.The study aims to explore changes in the level of IC, and to investigate the relationship between IC and firm performance of 191 listed banking sector firms in the New York Stock Exchange (NYSE). Value Added Intellectual Coefficient (VAIC) method was employed to measure IC. Changes in the level of IC, and relationship between IC and firm performance were studied through descriptive statistics and regression models. The findings show that the IC level of firms has declined over the years with a substantial decrease in 2001, 2002, 2007 and 2008, seemingly, during the financial turbulent situation in the economy. Moreover, the statistical evidence shows that there was a negative relationship between IC and productivity except for 2009 and 2010. It was also noted that the relationship between IC and profitability measured from the managers' perspective was negative since 2006. However, the association between IC and profitability from the owners' point of view was positive throughout. In addition, the empirical results do not support a positive association between IC and investor response towards organizations. Based on these findings, the study argues on the appropriateness of IC as a strategic asset in the process of value creation, at least in the context of this study. Furthermore, the present study extends the efforts of previous researchers who have attempted to empirically validate the VAIC method to different settings