The Interactive Effects of Intellectual Capital Components on the Perceived Relevance of the Balance Sheet as an Indicator of Future Financial Performance

By Shaniz Khan.

Published by The Organization Collection

Format Price
Article: Print $US10.00
Article: Electronic $US5.00

In today’s knowledge economy, knowledge embedded in individuals and organizations known as Intellectual Capital have become the pre-eminent economic asset that has future earning capabilities. However, despite being an organizational asset, Intellectual Capital is not reported in the traditional balance sheet. Therefore, it is not surprising that various studies have concluded that the balance sheet is losing its relevance as an indicator of future financial performance. However, most of these studies based their conclusions on the collective effects of Intellectual Capital and not on individual effects of Intellectual Capital components working together. As a result, this study aims to investigate if Intellectual Capital components interact to further significantly effect the perceived relevance of the balance sheet as an indicator of future financial performance among corporations today. The sample was obtained from 71 small and medium enterprises which operate in the most innovative and dynamic industries. Results from the study show that only Human Capital and Social Capital interact in influencing the balance sheet. There were no significant interactions between Structural Capital with other components. The results of this study have strong theoretical implications, showing the interactive nature of Intellectual Capital components on the relevance of the balance sheet as an indicator of future financial performance. Specifically, it highlights the need to change organizational culture which associates social interactions with low productivity. In reality, Social Capital enhances Human Capital and vice versa. As such, managers must realize that social interactions among staff can have a significant positive impact on future financial performances and therefore influence the relevance of their balance sheet.

Keywords: Interactive, Intellectual Capital, Balance Sheet

International Journal of Knowledge, Culture and Change Management, Volume 10, Issue 2, pp.13-24. Article: Print (Spiral Bound). Article: Electronic (PDF File; 644.967KB).

Dr. Shaniz Khan

Associate Professor, Business Administration Department, Alhosn University, Abu Dhabi, Abu Dhabi, United Arab Emirates


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