Investigating the effect of intellectual capital on profit management

Dissertation for M.A. degree

Abstract

In the last two decades, we have moved towards an economy where investment in human resources, information technology, research, development and advertising seems necessary in order to maintain competitive advantage and environmental assurance of organizations. Therefore, it can be said that the source of economic value creation is the creation and management of intangible assets, which are referred to as intellectual capital. Therefore, the purpose of this research is to investigate the relationship between intellectual capital on profit management, and in this research, with a statistical sample consisting of 73 active companies in the Tehran Stock Exchange, using the panel data regression method during the period of 1385 to 1390, the relationship between the elements of intellectual capital on profit management was investigated. On the other hand, the results state that human capital coefficient and relational capital coefficient have no significant relationship with profit management.

Keywords: intellectual capital, human capital coefficient, structural capital coefficient, profit management,

Chapter One: Research Overview

1-1) Introduction

By entering the knowledge-based economy, knowledge compared to other factors of production such as land, capital, machinery and so on. It has gained more priority so that in this economy, knowledge is considered as the most important factor of production and it is mentioned as the most important competitive advantage of organizations (Sitharaman et al., 2002).[1] One of the characteristics of knowledge is that it is intangible, that is, it is intangible and imperceptible, and it is very difficult to value and measure it. If in the past, organizations were able to fully calculate the value and size of their production factors using accounting methods, but today these accounting methods are no longer effective (Sullivan et al., 2000) [2]. Knowledge is considered as one of the most important components of intangible assets. If in the past, most of the assets of organizations were tangible, but today most of the assets of organizations are intangible. (previous source) In this knowledge-based economy, the success of organizations depends on the ability to manage these intangible assets, and in order to manage these assets, we must first identify and measure them so that we can finally manage them (Sanchez et al., 2000)[3]. By entering the knowledge-based economy, we have a new model of assets We need an organization. In general, organizational assets can be divided into 2 general categories:

1- Tangible assets: These assets include physical and financial assets that are almost completely reflected in the companies' balance sheets. These assets operate under the principles of scarcity economy, which means that by using them more, their value decreases.

2- Intangible assets: These assets are also divided into two general categories:

2-1: Intangible assets that are protected by law and given the title of intellectual property, which includes franchises, copyrights, franchises, signs and trademarks, etc. Some of its items are reflected in the balance sheet. 2-2: Other intangible assets that include intellectual capitals that operate under the principles of economics, that is, their value does not decrease with more use of them, and they are usually not reflected in the balance sheet. It is Tehran and it is tried to answer the question whether intellectual capital in joint stock companies accepted in Tehran Stock Exchange has an effect on profit management in these companies or not.In the rest of this chapter, according to the research topic, the main research problem, the necessity of conducting the research, the research objectives, the scope of the research, the variables under study, the research hypotheses, and at the end the terms and specialized words will be discussed.

1-2) Statement of the research problem

In intellectual capital accounting, there are assets that do not have physical properties, but these assets have significant benefits for the future cash flow of companies. The inability to report intellectual capital indicates the weakness of conventional or traditional accounting. Of course, their valuation in commercial transactions is difficult and simply not possible with existing methods. There is also no real economic theory or model for intellectual capital. The difference and gap between book value and market value of companies and the increase and severity of this gap in recent decades indicate the significant role of intellectual capital items in economic units that are not reported in common financial accounting, because it is beyond the limits and scope of identification and measurement in accounting, and the value or price of company shares is somehow dependent on understanding and knowledge of the future, which cannot be identified and reported in common financial accounting. Companies are well aware that intellectual capital is their only competitive advantage. But financial reports lack information related to intellectual capital resources. (Roselander and Fincham, 2001) [4]

A review of intellectual capital literature confirms the considerable attention to its measurement, valuation and reporting. For strategic survival, companies must consider competitive advantage, and since markets, products, technology, competitors, and regulations are changing rapidly in society, improving knowledge and continuous innovation will enable them to maintain a sustainable competitive advantage. (Nonaka, 1995) Because knowledge is considered as an asset and the effort to manage knowledge and use intellectual assets has been associated with considerable success in guiding organizations. In today's era, with the growth of the knowledge-based economy, the intangible assets of companies and their intellectual capital are the key to achieving a sustainable competitive advantage (TC[6], 2000) and for this reason, the attention to intangible items has grown rapidly in many fields, including economics, accounting and strategic management. Knowledge is a competitive advantage that is considered in the business strategy of organizations (Crow and Rose[7], 1996) in such a way that the creation of knowledge will lead to continuous innovation and continuous innovation will lead to the creation of competitive advantage. (Nonaka, 1995) Today, in order to improve performance and ensure business success and sustainability, organizations must pay attention to knowledge management (Suibi [8], 1997) and this requires strengthening and paying attention to the potentials and capacities of human resources so that organizations can quickly react to changes in the business environment and economic conditions in order to achieve a competitive advantage through performance and continuous improvement. (McDonald, 2000) [9].  Currently, in the knowledge-based economy, due to the significant importance of the return of intellectual capital compared to financial capital in determining profitability, the effort to measure this type of capital has increased in companies, and the measurement of the real value of intellectual capital has received more attention. Due to the inability of traditional accounting systems to estimate this importance, companies, investors and other stakeholders seek to find a suitable tool to measure intellectual capital and find its relationship with organizational indicators. Profit is one of the most important indicators of measuring the activities of an economic unit, and the idea of ??recognizing the behavior of accounting profit is a category that has been formed due to the expansion of quantitative management techniques and the need to pay attention to the needs of users of financial statements, and it has gone beyond the scope of measuring the results of past activities and using accounting to help. It has made the decision makers more capable. (Thaghafi and Aghaei, 1373, p. 5) Therefore, despite the fact that there is no comprehensive theory in the field of profit accounting that is agreed upon by everyone, and even with the accepted accounting standards, profit reporting faces challenges in practice, the reported profits have always enjoyed special credibility as one of the criteria for financial decision-making, and financial analysts have generally considered profit as a prominent factor in their reviews and judgments.