Intellectual Capital, Value Creation and Firm Performance in Singapore

Abstract

Stocks are continuously traded on the stock exchange, representing current and future prospects, whilst accounting reports are prepared periodically: quarterly, half yearly or on an annual basis inevitably giving rise to a difference between their market and book values. There are many approaches to explaining the difference. This thesis takes the approach of intellectual capital and seeks to assess and evaluate the explanatory power of its components on value creation and firm performance. In this research, data is collected from the financial reports of 90 quoted companies in Singapore, over a ten-year period from 2005-2014, covering the period pre and post effects of the global financial crisis. Companies were drawn from three sectors: manufacturing, services and other business activities. The research methodology adopts the positivist paradigm and a deductive approach with quantitative analysis. Two types of panel data regression models are estimated: static panel data analysis estimates the relationships of the components of intellectual capital, financial performance and share price; dynamic panel data analysis examines the changes in share price with the factors of intellectual capital. It emerged that the components of intellectual capital (i.e. human capital, relational capital, process capital and innovation capital) have significant impacts on financial performance, share price and change in share price. Empirically validated frameworks linking these factors were developed for each sector. Furthermore, the outcomes differ across industry sectors. This present research thus contributes theoretically to available academic literature on the development of competitive advantage and value creation. It could also be useful to practitioners who are focused on value creation.