Investigating the relationship between intellectual capital and financial performance of automotive companies admitted to the Tehran Stock Exchange

Master's thesis (MA)

Trend School of Management and Business Administration: Financial Management

Today, companies face stronger competition than in the past, and financial performance is the main goal of any organization. So every organization wants to increase its financial performance in different ways. Users of financial statements should be aware of the amount of intellectual capital of the company so that they can predict the future of the company and make informed decisions. Therefore, identifying and correctly valuing the intellectual capital of companies is essential for both managers and users of financial statements, and its importance is increasing day by day. Therefore, the purpose of the current research is to investigate the relationship between intellectual capital and its dimensions with financial performance (return on assets) of automotive companies admitted to the Tehran Stock Exchange. The current research is applied in terms of purpose and correlational in terms of descriptive method. In order to answer the research questions, a main hypothesis and three sub-hypotheses have been developed. In order to check the validity of the hypotheses, information was collected from among the target statistical population of the research, which includes managers and experts of automobile companies admitted to the stock market during a period of 5 years (1386 to 1390). The sampling method of this research is elimination type, and finally 20 companies were selected as a sample. In order to measure the intellectual capital, the questionnaire tool made by Bontis (1998) and based on thematic research related to the Likert scale was used, and in order to measure the dependent variables, the financial statements of the companies in the statistical community were used. Finally, SPSS software and Pearson's correlation analysis method were used to analyze the data. The results indicate that there is a significant relationship between intellectual capital and financial performance in stock exchange member automobile companies. Also, among the components of intellectual capital, human capital with a correlation coefficient of 0.637 and communication capital with a correlation coefficient of 0.598 respectively have the highest correlation with financial performance, and there is no significant relationship between structural capital and financial performance.

Key words: intellectual capital (IC), human capital, structural capital, communication capital, financial performance (ROA)

Introduction

Companies have resources that are critical to strong financial performance and competitive advantage. The first type of these resources are tangible assets such as property, machinery, and physical technologies that have substitutes that can be easily bought and sold in free markets. The second type are intangible, valuable, rare, irreplaceable and strategic assets that are capable of creating competitive advantage and superior financial performance. (Namazi and Ebrahimi, 1390) On the other hand, the development of information and the rapid progress of technology in the last decade have created a huge transformation in all aspects of human life and activities, and have caused a movement towards a knowledge-based economy and led to a change in the paradigm governing the industrial economy. (Hemti et al., 2009) In the current knowledge-based economy, intellectual capital is the main factor for the superiority and improvement of companies' performance. (Rahimian et al., 2013) Intellectual capital includes all resources of the organization that increase the value of the organization as well as the competence of the organization. So this shows that intellectual capital management will increase the value and financial performance of the organization in an effective and efficient way. (Ahmad Khan et al., 2012) The users of financial statements must be aware of the amount of intellectual capital of the company so that they can predict the future of the company and make informed decisions. Therefore, identifying and correctly valuing the intellectual capital of companies is essential for both managers and users of financial statements, and its importance is increasing day by day. Another issue that we should mention is the role and position of the food industry among the active industries in the Iranian market. According to the latest ranking of the country's 300 largest companies in 2019, which was carried out by the Industrial Management Organization, among the 22 industrial groups active in Iran, the automotive and vehicle parts group took the first place in terms of sales. Iran's automobile industry is the most active industry in Iran after the oil industry. In 2009, Iran ranked fifth in the world in terms of the growth rate of the automobile industry.Considering that the automobile industry is so important, and also recently due to the inflation of automobile prices, I decided to work in this field for my dissertation. 2-1. Statement of the research problem Today, companies are facing stronger competition than in the past, and financial performance is the main goal of any organization. So every organization wants to increase its financial performance with different methods. (Ahmad Khan et al., 2012) In recent years, competitive advantage has become the focus of competitive strategies. In order to improve performance and face competitors, companies must have competitive advantages so that they can have superior performance in complex conditions and maintain themselves in the markets. According to the resource-based view, the superior performance of companies can come from their unique resources, resource integration, or the ability to respond to the environment. According to this view, the difference in the performance of companies is due to the fact that successful organizations have strategic resources (physical, human and organizational) that their competitors lack. According to the perspective based on company resources, intellectual capital is strategic resources that enable companies to create competitive advantage and superior financial performance (Sinaei et al., 2019). Despite accepting the undeniable role of intellectual capital and intangible assets in the performance of companies, most of the traditional systems are not able to measure the intellectual capital of companies and reflect it in financial statements, while their importance in increasing the wealth of shareholders, obtaining sustainable profitability, increasing the share of companies in global markets, evaluating the current performance of the business unit, as well as future forecasts, has always been considered. Since companies identify opportunities and threats around them in carrying out strategic planning, they are bound to obtain comprehensive information about the capacities, adequacy and efficiency of their internal resources. Marr, 2004)) The knowledge-based business environment requires an approach that includes new intangible organizational assets such as knowledge and competencies of human resources, innovation, customer relations, organizational culture, systems and organizational structure, etc. (Kelich Lee et al., 2017) Intangible factors and intellectual capital as the main element of development in a knowledge-based economy provide companies with the necessary ability to carry out strategic plans. (Marr, 2004) In fact, intellectual capital provides a complete new model to observe the real value of organizations and by using it, the future value of the company can also be calculated, so the approach of intellectual capital is more comprehensive for organizations that want to be well aware of the value of their performance (Madhhoshi and Asgharanjad, 2018)

On the other hand, following the development of information technology in the 1990s, the pattern of economic growth underwent fundamental changes and the factor Knowledge, as the most important capital, replaced financial and physical capital in the global economy. (Chen, 2004) In the knowledge-based economy, products and organizations live and die based on knowledge, and the most successful organizations are those that use this intangible asset in a better and faster way (Kelich Lee et al., 2017). Accordingly, the present and future success in the competition between organizations will be based to a small extent on the strategic allocation of physical and financial resources and to a large extent based on the strategic knowledge. (Malekian and Zare, 2009)

The emergence of the new economy, which is basically driven by information and knowledge, has led to an increasing interest in intellectual capital (IC). (Tan et.al, 2007) Intellectual capital is a capital beyond physical assets and tangible assets. Nowadays, the contribution of intellectual capital due to the production of knowledge and information and as a result the production of wealth in the knowledge-based economy can play an important role in creating added value and gross domestic product. For this reason, at the level of economic enterprises, the financial performance of companies can be affected by intellectual assets and human capital. (Abassi and Goldi Sedghi, 2019) In general, in today's knowledge-oriented societies, the return on intellectual capital used has become much more important than the return on financial capital. (Bontis, 1999) Intellectual capital is manifested in customers, processes, information, trademarks, human resources, and organizational systems, and plays an increasing role in creating sustainable competitive advantages. (Shams and Khalili, 2019). Intellectual capital in this research consists of three dimensions of human capital, communication and hard work.