Intellectual capital: a determinant of firms' operational efficiency

Purpose Intellectual capital (IC) has been recognized in improving the efficiency of businesses and gaining competitive edge in the developed world. The present study offers perspectives into the effect of IC on the efficiency of the Indian financial sector companies. Design/methodology/approach For the purpose of evaluating efficiency, the research has used stochastic frontier analysis (SFA). All Indian financial sector companies listed in National Stock Exchange (NSE-500) for the timeframe of ten years (2008–2018) have been considered. The paper has employed modified Pulic's Value Added Intellectual Coefficient (VAICTM) as a proxy to measure IC. Correlation and panel data regression have been used in order to examine the relationship. Findings The results of the study indicate positive and significant relationship between IC and efficiency of the firm. The results also show that all the components of IC, that is, human capital, relational capital, process capital and capital employed have a significant impact on firms' efficiency. Additionally, it has been seen that sample companies do not invest in research and development leading to no innovation capital. Practical implications The research will assist managers in managing and controlling the IC, investors in matters related to investment and financial experts in improving the company's IC and value creation. Originality/value The current research is one of the pioneering studies in the context of Indian financial sector that examines the impact of modified VAIC on operational efficiency calculated using SFA.