The Role of Intellectual Capital on Financial Performance of SMEs

Abstract

The purpose of this study was to obtain empirical evidence of the influence of components of intellectual capital, namely human capital, structural capital, and relational capital on the financial performance of small medium enterprises or SMEs in Jayapura City and Jayapura Regency, West Papua, Indonesia. Respondents in this study consisted of 54 respondents who had business fields, consisting of culinary businesses, fashion, daycare services, lodging services, and futsal fields. In addition, respondents are selected based on ethnicity, namely, Papuan as many as 26 people or 51.8% and non-Papuan as many as 28 people or 48.2%. The analytical tool is used in SmartPLS 3 by looking at the measurements of the outer model and inner model. The results show that the components of human capital and relational capital significantly affect the financial performance of SMEs with a significance value of 0.042 and 0.044, respectively. Meanwhile, the hypothesis of the influence of the structural capital component on SME financial performance is not statistically supported with a significance value of 0.569. The results theoretically provide empirical evidence for studies on the importance of intellectual capital on the financial performance of SMEs in particular with the context of SMEs in Papua that has not been studied. The main findings of this study highlight the development of intellectual capital in SMEs. The limitations of this study lie in the effect of structural capital components on financial performance which is not empirically supported. Thus, further research needs to examine the effect of structural capital interaction with other components of intellectual capital to improve MSME financial performance.