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Exploring the nexus of corporate governance and intellectual capital efficiency: from the lens of profitability

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Abstract

Previous literature revealed that corporate governance (CG) attributes enhance firm performance. However, scant empirical research is available on how the CG attributes improve the intellectual capital (IC) efficiency. To fill this gap, the present study explores the effect of CG on IC efficiency. This study also intends to explore the moderating role of profitability on the nexus of CG and IC to identify whether it affects physical and intellectual capabilities. Using the census sampling technique, this study utilized the panel data of services firms in Pakistan over the period 2016–2020. The study adopted Pulic’s model for computing IC efficiency, i.e., the value-added intellectual capital coefficient model. Fixed-effect model and two-stage least squares were utilized for the regression analysis. The study’s findings revealed that independent directors, the board size, audit committee, and remuneration committee have a significant negative relationship with IC efficiency. CEO duality has demonstrated a significant positive nexus with IC efficiency. Interestingly, the negative coefficient of audit and remuneration committees becomes positive with the moderation of profitability. This study adds to the literature on the vital role of CG in fostering IC efficiency. The findings of this study might be helpful for the policymakers, practitioners, and researchers to put in place a solid corporate governance structure that enhances physical and intellectual capabilities.

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Authors and Affiliations

  1. Department of Management Sciences, Abbottabad University of Science and Technology (AUST), Havelian, Khyber Pakhtunkhwa, Pakistan

    Khuram Shahzad

  2. Department of Management and Humanities, Universiti Teknologi PETRONAS, 32610, Seri Iskandar, Perak, Malaysia

    Syed Quaid Ali Shah, Fong-Woon Lai, Ahmad Ali Jan & Muhammad Kashif Shad

  3. Department of Management Sciences, Comsats University, Abbottabad Campus, Abbottabad, Pakistan

    Syed Azmat Ali Shah

Authors
  1. Khuram Shahzad
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  2. Syed Quaid Ali Shah
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  4. Ahmad Ali Jan
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Appendix

Appendix

Operationalization of variables

 

Variables

Description

Measurement

Dependent variables

1

VAIC

Intellectual capital

VAIC = CEE + HCE + SCE

Independent variables

2

DUAL

CEO with position of chairman

1 = if there is duality, 0 = otherwise

3

BSIZE

Board size

Total board members

4

IND

Independent directors

The ratio of independent directors to total directors

5

AC

Audit committee

No of all directors in AC

6

RC

Remuneration committee

No of all directors in RC

Moderating variables

7

ROA

Return of asset

Net income over total assets

8

ROE

Return of equity

Net income over total equity

Control variables

9

LNTA

Bank size (natural log of the asset)

Overall assets

10

LEV

Leverage

The ratio of total debt to total assets

Hausman Test

 

Coef

Chi-square test value

22.29

P-value

0.008

Decision: As the P-value is less than 5%, hence Fixed Effect Model is preferred

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Shahzad, K., Shah, S.Q.A., Lai, FW. et al. Exploring the nexus of corporate governance and intellectual capital efficiency: from the lens of profitability. Qual Quant 57, 2447–2468 (2023). https://doi.org/10.1007/s11135-022-01472-z

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