The Impact of Intellectual Capital on Firm Performance: A Modified and Extended VAIC Model

Abstract

Intellectual capital (IC) is generally understood as an important driver of firm competitiveness improvement and value generation in the knowledge economy.The manufacturing industry, the backbone of the South Korean economy, is coming under increasing international pressure.In order to increase the competitiveness of Korean industry, the main objective of this paper is to examine the impact of IC and its components on the performance of Korean manufacturing firms over the period 2013-2018.The modified and extended Value Added Intellectual Coefficient (VAIC) model was adopted to more accurately measure IC, and firm performance was systematically and comprehensively measured in three distinct parameters: profitability, productivity and market value.Our regression results show that physical capital was the most influential factor to firm performance; human capital was viewed as a performance enhancing measure; structural capital had no significant impact on firm performance; and innovation capital and relational capital hurt a firm's profitability.It is also evident that the modified and extended VAIC model performs better than the original VAIC model proposed by Pulic (1998).This study extends the understanding of IC in achieving a competitive edge in the manufacturing sector, with IC representing a valuable platform for the sustainable development of the manufacturing sector in emerging Asian markets.