1. Introduction
Tangible assets are vital in achieving firm efficiency, especially in an industrial economy. However, there is currently a transition toward a knowledge economy in which intangible assets play a crucial role in improving firm efficiency and growing knowledge to build a competitive advantage (
Janošević et al. 2013). Intangible assets impact economic development and performance and enhance firms’ competitive competence (
Smriti and Das 2018). Intangible assets, particularly intellectual capital (IC), refer to the knowledge assets that can build and enhance a firm’s value (
Dzenopoljac et al. 2017). IC is the most essential and sensitive factor influencing business performance in today’s global and knowledge economy. IC quickly becomes a fundamental capital component and a crucial instrument for creating new economic value (
Nadeem et al. 2017;
Smriti and Das 2018). Extent studies have indicated that IC serves as an intangible asset of the company (
Kasoga 2020;
Xu and Wang 2019).
For many years, the position of IC has controlled the generation of wealth in businesses (
Vishnu and Gupta 2014;
Soetanto and Liem 2019). Despite the extensive literature on IC, the results of the studies are inconsistent, with a lack of emphasis on Malaysian firms (
Lee and Mohammed 2014). Additionally, Malaysian firms are unfamiliar with measuring intangible assets or IC compared to tangible and physical assets (
Poh et al. 2018). Many companies and sectors in Malaysia have not yet incorporated the measurement of IC in their business (
Poh et al. 2018). Malaysia is predicted to grow its number of skillful workers in the knowledge economy. This phenomenon will push IC to the center of the organization’s long-term competitive advantage (
Hashim et al. 2017).
The advantages of IC may be seen in the changes in countries from an industrial to a knowledge economy (
Kasoga 2020). In doing so, Malaysia changed from a country focused on agriculture to the manufacturing industry. As a result, Malaysia began laying the foundation for a knowledge economy in the mid-1990s (
Kweh et al. 2019). Consequently, Malaysia started promoting a knowledge economy in the early 2000s, recognizing the importance of fostering sustainable economic growth. The Knowledge Economic Master Plan was initiated and published in 2001 to achieve sustainable economic growth through investments in IC to keep pace with the emerging global economy (
Kweh et al. 2019). This master plan provided strategic direction in human capital, technology, and R&D (
Kweh et al. 2019). IC is crucial to the Malaysian government’s plans and efforts to develop a knowledge economy (
Kweh et al. 2019).
According to the resource-based view theory (RBV), IC significantly influences firm performance. The RBV is the most widely selected theory perspective of IC’s strategic management fields (
Newbert 2007). In addition, RBV stressed the importance of intangible resources that include analysing IC to create sustainable competitive advantages for a company. On the other hand, agency theory argues that ownership structure assists in mitigating the conflict between management and shareholders (
Jenson and Meckling 1976). Furthermore, the agency theory suggests that the ownership structure of the firms determines the amount of information disclosed.
A company’s success depends on its corporate governance framework, specifically for its shareholders and investors. It is necessary not just for the individual company but also for the stability of the financial system and the economy (
Hooy et al. 2020). One of the key aspects of corporate governance studies is ownership consideration. It changes over time as a business issues new shares or existing shareholders trade heavily in the market (
Kao et al. 2018). Hence, ownership is a common feature, and being highly concentrated was a major contributor that drove Malaysia into the Asian financial crisis (
Mohd Ghazali 2020). In addition, like in other developing nations, family, government, and individual stockholders dominate the business environment in Malaysia (
Mohd Ghazali 2020).
Researchers have examined the relationship between IC and ownership structure and corporate performance (
Kasoga 2020;
Smriti and Das 2018;
Rashid 2020). The present research employed financial performance as a traditional indicator to analyze firm performance. Moreover, evaluating a company’s financial performance assists decision-makers in determining the effectiveness of various levels of business strategies. Additionally, return on assets (ROA) and return on equity (ROE) are widely accepted among the researchers (
Nadeem et al. 2017;
Kweh et al. 2019;
Yao et al. 2019;
Soetanto and Liem 2019;
Xu and Li 2019;
Kao et al. 2018). Many researchers considered ROA and ROE to be the essential profitability indicators for determining a company’s financial performance (
Zhang et al. 2021).
This study focuses on Malaysian firms because IC’s measurement as an intangible asset is yet to be identified and understood. Furthermore, the literature also indicates that the association between IC and performance has yet to be thoroughly explored, particularly in Malaysia’s non-financial firms. Hence, this study investigates the relationship between IC efficiency, its components, ownership structure, and firm performance. Thus, the current study would expand the research on IC efficiency as the main factor of competitive advantages and understand how IC contributes to Malaysian non-financial firms’ performance. Moreover, the current study provides significant insight into this potential relationship and contributes to the literature in numerous ways. Hence, the current study’s contributions are as follows. First, despite several available studies, empirical evidence on the impact of IC on firm performance is scarce in Malaysia, and most studies have been conducted in developed countries. Hence, the current study addresses a gap in the literature by empirically examining the relationship between IC and firm performance in Malaysia. Second, previous studies from Malaysia usually investigate the case of the financial sector or some other sectors individually. Furthermore, this study covers 409 non-financial companies divided into 11 industries in Bursa, Malaysia. The non-financial listed firms were selected for the study because non-financial sectors are considered the engine of economic growth, especially in emerging economies like Malaysia. Additionally, in the knowledge economy, the construction, energy, health care, technological industries, etc., can build job opportunities and provide new income sources for skilled workers and innovative products.
Third, the current study enhances the body of knowledge by performing the modified value-added intellectual coefficient (MVAIC) model by adding one additional IC component, relational capital efficiency (RCE), a more comprehensive model for measuring IC efficiency. Fourth, ordinary least squares (OLS) or fixed-effects (FE) models produce inconsistent estimators. Additionally, to deal with the possible endogeneity issue, this study used panel two-step GMM (
Nadeem et al. 2017;
Soetanto and Liem 2019). Hence, this study will provide non-financial firms in Malaysia with a better knowledge of the impact of ownership structure in determining firm performance. Fifth, this study presents an opportunity for companies to build competitive advantages using IC and its components to enhance firms’ performance. As a result, the study seeks to address a gap in the literature by investigating which IC components improve profitability and value creation in Malaysian non-financial firms. Finally, since IC is a crucial component of the Malaysian government’s Knowledge Economic Master Plan, which was initiated in 2001, this study’s findings will assist the government in achieving sustainable economic growth through investments in IC to keep pace with the emerging global economy.
7. Conclusions, Implications, Limitations, and Recommendations for Further Studies
The relationship between IC, ownership structure, and business performance has received considerable attention from academics and researchers worldwide in the past two decades. In the current study, MVAIC was used with added RCE as an additional component as a proxy to measure IC, foreign, and government ownership as proxies of ownership structure. Because earlier research relied on OLS, FE, or RE, it ignored the relationship’s dynamic nature. However, to fix the potential issue of endogeneity between IC and performance, this study used the dynamic panel regression two-step system GMM. This study demonstrates that IC efficiency is essential for enhancing the company’s performance. The empirical findings add to a current study by showing that IC plays a significant role in developing value for Malaysian companies. This empirical analysis confirms that IC enhances a firm’s profitability when used correctly and efficiently.
Further, regarding checking the impact of individual elements of MVAIC, the findings of model two revealed that all four components, namely (HCE, SCE, CEE, and RCE), had a strong association with firms’ profitability. Additionally, government ownership (GVOWN) positively influenced ROA in both models. Therefore, it aligns with past studies (
Fauzi and Musallam 2015;
Tran et al. 2014). In addition, foreign ownership had positive and significant effects on ROA. Similarly, the same results were reported in prior studies (
Bentivogli and Mirenda 2017;
Kao et al. 2018;
Musallam 2015). From a practical perspective, this study would assist managers in using several IC components to detect, capture, and measure the numerous IC types that must not be overlooked to improve firm performance.
Furthermore, the findings could be helpful for potential investors who want to predict a firm’s future IC efficiency before making an investment decision. Additionally, policymakers and business managers may utilise the study results as a beginning point to design more effective methods for using IC resources to obtain competitive advantages. Furthermore, this study provides evidence to policymakers that increasing GVOWN and FROWN in Malaysian non-financial companies can improve corporate performance.
This study, like many others, has some limitations. Firstly, this study applies the MVAIC model for assessing IC efficiency. Future studies should consider the original VAIC model to test IC’s accuracy measure. Additionally, further studies may be undertaken using alternative methodologies for assessing IC efficiencies, such as the Balanced Scorecard, Skandia navigator, and National IC Index. Second, the MVAIC model is still questionable and criticized in the literature. Therefore, this study suggests that further research should add other components, such as innovation and process capital, to better understand and improve the MVAIC model. Third, the sample of this study is restricted to non-financial companies only. Future research might expand the study by incorporating financial firms and comparing financial and non-financial listed firms in Malaysia. In addition, future studies might be undertaken by collecting samples from other Asian nations. Fourth, this study focused only on two proxies of ownership structure with firm performance. Future research needs to be extended to investigate other dominant ownership variables, such as family, local ownership, etc., with different performance indicators such as asset turnover and market-based performance like Tobin’s Q. ratio and market/book value. Lastly, this study is limited to investigating the direct relationship between IC and firm performance. In this regard, further studies can investigate the moderating or mediating role of other variables, such as corporate governance mechanisms between IC and firm performance.