THE INTERLINKAGE BETWEEN VALUE ADDED INTELLECTUAL CAPITAL AND CORPORATE PROFITABILITY: A STUDY ON INDIAN PHARMACEUTICAL COMPANIES

Abstract

Intellectual capital (IC) is considered an essential means for increasing the worth of businesses and giving them a competitive edge in the industrialized world. Therefore, stakeholders must comprehend how it affects the profitability of companies. The present study analyses the effects of intellectual capital on Indian pharmaceutical businesses’ profitability. The study examines the inter-relationship among the different aspects of intellectual capital, viz., human capital, structural capital, and physical capital, and their overall relation with the different profitability paraments like Operating profit (Profit before depreciation, interest, tax, and amortization), Net profit margin (NPM), Return on net worth (RONW), Return on capital employed (ROCE). For probing the impact of intellectual capital on the firm profitability of pharmaceutical companies’ Descriptive statistics, Correlation analysis, Panel Regression analysis, and Principal Component Analysis have been applied. Appropriate hypothesis tests like Hausman’s specification test, paired t-test, KMO test, Bartlett’s test, etc., have been carried out as appropriate. The results indicate a significant positive relationship between intellectual capital and firms’ profitability. Also, it is found that human capital, relational capital, and physical capital have a significant role in increasing the firms’ profitability