Impact of intellectual capital and working capital management on listed firms’ performance in Pakistan

Intellectual capital (IC) and working capital management are important assets that play vital role for firms’ performance, and it has often been neglected. In spite of their importance, there is a serious dearth of literature on relationship between IC, working capital management and firm performance in Pakistan. Therefore, the objectives of this study are to determine the investment efficiencies in IC and its components in non-financial sectors, to determine the relationship between IC and firm performance and determine the impact of working capital management on firm performance. This study used the modified intellectual capital coefficient (MVAIC) to measure IC and three proxies of performance (return on assets, return on equity and Tobin’s q). A panel data of 140 Pakistani firms from fourteen industries were obtained from Datastream for the period 2009-2018. Using Kruskal-Wallis one-way analysis of variance, the findings revealed that fourteen industries manage IC components differently. On average, industries more efficiently manage relational capital than other IC components in order to create IC value. Using the dynamic panel generalized method of moments (GMM) study findings revealed that IC variables and working capital variables have inconsistent relationships with proxies of firm performance. However, all IC components have significant and positive relationships with TQ. Findings of the study have potential implications for policymakers in Pakistan. Financial managers must give equal importance to all IC components to create IC value and manage their current assets and current liabilities as these factors have been found to have impact on firm performance.