Impact of intellectual capital on return on investment in Pakistani corporate sector

Abstract

Abs tract: Importance of intellectual capital (IC) has captured the attention of res earchers and bus ines s enterpris es in the free market era. IC has been widely recognized as a critical tool to run the bus iness s ucces s fully in a highly competitive environment. Various models have been introduced to meas ure the numerous facets of IC, i.e. the Skandia navigator, Tobin's Q, and value ad d e d in tellectual coefficient (VA IC). The aim of this s tudy is to examine the relat io n s hip between intellectual capital a n d return on investment (ROI) us ing the VA IC developed by A nte Pulic (1998). Seven-year data s e t for Lahore Stock Exchang e In d e x c o mpanies (LSE-25) was obtained from audited financial reports , and us ed t o c a lc ulate human capital, s tructural capital, and capital-employed efficiency of companies related to d ifferent indus trial sectors. The res ults obtained us ing multiple regres s ion analys is support the argument that IC efficiency contributes s ignificantly to ROI of an organization. Practically, IC efficiency can be us ed as a benchmark and s trategic indicator to direct fin a ncial and intellectual res ources towards the right direction to enhance the firm's ultimate corpora t e v a lu e . T h e study is a pio n eering attempt in Pakis tan to measure the impact of IC efficiency on ROI us ing cros s s ectional time series data