Investigating the effect of intellectual capital and working capital on the financial performance of manufacturing companies admitted to the Tehran Stock Exchange

Dissertation for Master's Degree in Business Administration

Financial Management Orientation

Abstract

The main purpose of this research is to investigate the effect of intellectual capital and working capital on financial performance, including return on assets, return on equity and profit margin of manufacturing companies admitted to the Tehran Stock Exchange during the years 1388 to 1391. Its statistical population is all manufacturing companies admitted to the Tehran Stock Exchange, among which 73 companies were selected through judgmental sampling. The results of the test of the main hypotheses of the research, which were examined in the form of a regression model, showed that intellectual capital does not have a significant effect on the return on assets, while working capital has a significant and positive effect on the return on assets. Intellectual capital has a significant and positive effect on the return on equity, while working capital does not have a significant effect on the return on equity. Intellectual capital and working capital both have a significant and positive effect on profit margin. The results of the sub-hypotheses test showed that intellectual capital has a significant and negative effect on the return on assets and a significant and positive effect on the return on equity and profit margin. Among the financial performance indicators, working capital only has a significant and positive effect on the return on assets. Also, among the elements of intellectual capital (efficiency of capital employed, efficiency of human capital and efficiency of structural capital), efficiency of capital employed has a significant and negative effect and efficiency of human capital has a significant and positive effect on the return on assets, efficiency of structural capital does not have a significant effect on the return on assets. The efficiency of human capital and the efficiency of structural capital have a significant and positive effect on the return on equity, the efficiency of capital employed does not have a significant effect on the return on equity. The efficiency of human capital has a significant and positive effect on the profit margin, the efficiency of capital used and the efficiency of structural capital do not have a significant effect on the profit margin.

Key words:

Intellectual capital, efficiency of capital employed, efficiency of human capital, efficiency of structural capital, working capital, financial performance.

Introduction

Thinkers and experts to describe the current era, terms They have used various terms such as post-industrial age, information age, third wave or knowledge society. The terms and vocabulary used are all common in one thing, and that is the importance of knowledge in the current era; Drucker, a famous management thinker, says: We are entering a knowledge society in which other important economic resources include financial capital, natural resources, labor and so on. They are not and the main economic source will be knowledge. The 21st century is the century of knowledge. In an age where information and knowledge have become very important, intellectual capital [1] as a factor of wealth production becomes more preferable compared to other tangible and physical assets (Bontis, 1998). Today, in order to provide the maximum necessary conditions to achieve goals and strategies, organizations must not only identify, measure and manage their intangible assets, but must always try to continuously improve and improve such assets. The reality is that organizations that fail to continuously upgrade their knowledge assets will trade their survival for the risk of loss and destruction. Therefore, it is expected that companies with higher intellectual and human capital will have higher financial performance. Intellectual capital is a capital beyond physical assets and tangible assets. Today, 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. In today's leading organizations and companies, the share of knowledge compared to other sources is increasing day by day, so that today the continuity of activity and profitability of most organizations and companies depends on knowledge. Therefore, the more organizations and companies are rich in terms of intangible assets[2] and intellectual capital, the better and faster they can achieve high levels of growth and development.

In terms of terminology, working capital is given in front of the English term (Working Capital) and in the English interpretation it is synonymous (Circulated Capital), because it includes part of the company's capital, which has a role similar to blood in the veins. In general, working capital refers to the company's investment in short-term assets such as cash, short-term securities, accounts receivable and inventories, and net working capital is current assets minus current liabilities.

Working capital management in connection with financing decisions and control of current assets of for-profit units on the one hand and long-term financing and risks arising from short-term and long-term financing on the other hand, reveals the importance of the issue. The nature of the growth of short-term assets from short-term financial resources should be taken into consideration by financial managers in order to provide the necessary conditions for the realization of short-term goals and the continuation of activities in the long term. Management of working capital is related to financing and management of current assets of institutions (Nikomram et al., 2016). 1-2 Statement of the problem One of the most important challenges and problems of traditional accounting systems is the lack of reflection of the value of intellectual capital in the financial statements and reports of business units. While today, the role of intellectual capital in creating value for companies and business units is much greater than the role played by financial capital in the units. In the meantime, the accounting profession and accountants play an important role in finding effective ways to control and measure intellectual capital through models and evaluation methods of these capitals.

Traditional accounting methods are no longer responsive to the needs of today's dynamic society, and in order to examine the status of every organization in this society, methods must be used that include intangible resources, because these intangible resources are the ones that cause differences in market value and book value and are the drivers of the market today. (Rezaei et al., 1388).

Many current accounting systems are oblivious to the increasing role and importance of intellectual property rights and knowledge in organizations of the modern age and are unable to measure the real value of assets in their calculations. In other words, financial statements have many limitations in describing the real value of companies. In today's knowledge-oriented societies, the return on intellectual capital used has become much more important than the return on financial capital used (Shams and Khalili, 2010). This means that in the future, compared to intellectual capital, the role and importance of financial capital in determining sustainable profitability will be significantly reduced. This issue has created a gap between the real value of companies and organizations to what is applied in traditional accounting calculations.

Intellectual capital is a new issue that has been raised theoretically in the last few years at the global level. But since it is considered a valuable resource for countries and organizations, its growth and development rate is rapidly becoming an indicator of countries' development. On the other hand, this intangible resource has been proposed as one of the most valuable resources of companies and a key capital in the growth of entrepreneurship. The development of information and the rapid progress of technology in the last decade has created a huge transformation in all aspects of human life and activities and has led to a movement towards a knowledge-based economy and has led to a change in the ruling paradigm of the industrial economy. Today, we can witness an economy based on knowledge and information, which is based on intangible assets and intellectual capital. In such an atmosphere, the intellectual capital of organizations has been considered more and more as competitive advantages. In fact, the world after the agricultural and industrial revolution in which land, capital and labor were considered the main resources is witnessing an information revolution in which the main resources are formed based on knowledge and information. In the age of knowledge, intellectual capital is an important issue and moving into the third millennium, intellectual power is more valuable than muscle power, mechanical power or even technical power (Mojtahedzadeh, 1382).

Capital forms the foundation of financial management discussions and it can be claimed that all business activities require capital, capital is all the financial resources that are used by the company, and in this regard, financial management determines the framework of the relationship between capital and the company according to the position of capital in Organizational processes, its management is of particular importance.