Does intellectual capital investment enhance firm performance? Evidence from pharmaceutical sector in China

The study aims to systematically analyse the relationship between intellectual capital (IC) and firm performance measured through earnings, profitability, corporate return, sales growth, productivity, and market value. The modified Value Added Intellectual Coefficient (MVAIC) is used as a measure of IC. Multiple regression models are employed with data drawn from a sample of 204 Chinese pharmaceutical listed companies during 2013-2018. The findings suggest that the aggregate IC exerts a positive impact on firms' earnings, profitability, corporate return, and productivity. Astonishingly, IC has a negative impact on market value and no impact on sales growth. Regarding IC components, physical capital and human capital (HC) are the main contributors to firm performance. In addition, structural capital (SC), relational capital (RC), and innovation capital are the least-developed elements of IC. Our results extend the understanding of IC in the context of China and provide some insights for management and shareholders to evaluate corporate intangible investments.