Analysing the relationship between intellectual capital and performance in local governments

This study investigates the relationship between intellectual capital (IC) and organisational performance within the context of local governments (LGs). We examine this relationship in the light of both directions of the IC research stream recognised by Mouritsen (2006) as the IC1-ostensive view and the IC2-performative view. For this reason, a dual research approach is adopted which combines published and survey data. Empirical evidence advocates that components of IC are related to improved performance measured through both financial ratios and perceptions of performance. Thus, the empirical findings hold regardless of the IC view and offer corroborating evidence that LGs with higher IC perform better than LGs with lower IC. The study contributes to the analysis of the organisational mechanisms that enable LGs to realise economic benefits from IC and proposes a methodology for (inferred) IC measurement for LGs through the analysis of accrual accounting financial statements.