Nexus between intellectual capital and financial performance: an investigation of Chinese manufacturing industry

    Jian Xu   Affiliation
    ; Feng Liu   Affiliation


How to manage financial performance through the utilization of intellectual capital (IC) is an important issue in the knowledge economy. The objective of this study is to investigate the impact of IC on financial performance for manufacturing listed companies in the Chinese context. Financial performance is measured from two distinct aspects: (1) firm profitability, measured through earnings before interest, taxes, depreciation and amortization (EBITDA), net profit margin (NPM), and gross profit margin (GPM), and (2) corporate return, measured through return on investment (ROI), return on assets (ROA), and return on equity (ROE). The results show a positive relationship between NPM, GPM, ROI, ROA, ROE, and IC (measured through the market-to-book ratio). In addition, the more intangible-intensive manufacturing listed companies exhibit better financial performance. The study provides evidence that higher investment in IC can improve value creation in the emerging economies.

First published online 17 December 2020

Keyword : intellectual capital, financial performance, firm profitability, corporate return, market-to-book ratio, manufacturing listed companies

How to Cite
Xu, J., & Liu, F. (2021). Nexus between intellectual capital and financial performance: an investigation of Chinese manufacturing industry. Journal of Business Economics and Management, 22(1), 217-235.
Published in Issue
Jan 27, 2021
Abstract Views
PDF Downloads
Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.


Abdi, K., Mardani, A., Senin, A. A., Tupenaite, L., Naimaviciene, J., Kanapeckiene, L., & Kutut, V. (2018). The effect of knowledge management, organizational culture and organizational learning on innovation in automotive industry. Journal of Business Economics and Management, 19(1), 1–19.

Allameh, S. M. (2018). Antecedents and consequences of intellectual capital: The role of social capital, knowledge sharing and innovation. Journal of Intellectual Capital, 19(5), 858–874.

Andreeva, T., & Garanina, T. (2016). Do all elements of intellectual capital matter for organisational performance? Evidence from Russian context. Journal of Intellectual Capital, 17(2), 397–412.

Anghel, I. (2008). Intellectual capital and intangible assets analysis and valuation. Theoretical and Applied Economics, 3(3(520)), 75–84.

Anghel, I., Siminică, M., Cristea, M., Sichigea, M., & Noja, G. G. (2018). Intellectual capital and financial performance of biotech companies in the pharmaceutical industry. Amfiteatru Economic, 20(49), 631–646.

Basso, L. F. C., Kimura, H., & de Aguiar, J. F. (2010). Intellectual capital and value creation in the production and assembly of vehicles and auto-parts sector in Brazil: A panel data analysis. Journal of Modern Accounting and Auditing, 6(8), 15–25.

Bhasin, M. L. (2011). Intellectual capital reporting study of IT-sector corporations in India. Australian Journal of Business and Management Research, 1(1), 16–28.

Bontis, N., Dragonetti, N. C., Jacobsen, K., & Roos, G. (1999). The knowledge toolbox: A review of the tools available to measure and manage intangible resources. European Management Journal, 17(4), 391–402.

Bramhandkar, A., Erickson, S., & Applebee, I. (2007). Intellectual capital and organizational performance: An empirical study of the pharmaceutical industry. Electronic Journal of Knowledge Management, 5(4), 357–362.

Brealey, R. A., Myers, S. C., & Allen, F. (2011). Principles of corporate finance (10th ed.). McGraw-Hill Education.

Britto, D. P., Monetti, E., & Lima, J. D. R. Jr. (2014). Intellectual capital in tangible intensive firms: The case of Brazilian real estate companies. Journal of Intellectual Capital, 15(2), 333–348.

Chareonsuk, C., & Chansa-ngavej, C. (2008). Intangible asset management framework for long-term financial performance. Industrial Management & Data Systems, 108(6), 812–828.

Chen, M. C., Cheng, S. J., & Hwang, Y. (2005). An empirical investigation of the relationship between intellectual capital and firms’ market value and financial performance. Journal of Intellectual Capital, 6(2), 159–176.

Chen, Y. L., Wang, L., Jiang, M. D., & Shen, X. M. (2018). Research on the performance and influencing factors of manufacturing listed companies in northeast China-Based on the DEA-Malmquist-Tobit model. Journal of Industrial Technological Economics, 37(1), 51–57 (in Chinese).

Chu, S. K. W., Chan, K. H., & Wu, W. W. Y. (2011). Charting intellectual capital performance of the gateway to China. Journal of Intellectual Capital, 12(2), 249–276.

Cohen, J. (1988). Statistical power analysis for the behavioral sciences (2nd ed.). Lawrence Erlbaum Associates.

Crema, M., & Verbano, C. (2016). Managing intellectual capital in Italian manufacturing SMEs. Creativity and Innovation Management, 25(3), 408–421.

Dženopoljac, V., Janoševic, S., & Bontis, N. (2016). Intellectual capital and financial performance in the Serbian ICT industry. Journal of Intellectual Capital, 17(2), 373–396.

Dzenopoljac, V., Yaacoub, C., Elkanj, N., & Bontis, N. (2017). Impact of intellectual capital on corporate performance: Evidence from the Arab region. Journal of Intellectual Capital, 18(4), 884–903.

Edvinsson, L., & Malone, M. S. (1997). Intellectual capital: Realizing your company’s true value by finding its hidden brainpower. Harper Business.

Edvinsson, L., & Sullivan, P. (1996). Developing a model for managing intellectual capital. European Management Journal, 14(4), 356–364.

Ferramosca, S., & Ghio, A. (2018). Leveraging intellectual capital in developing countries: evidence from Kenya. Journal of Intellectual Capital, 19(3), 562–580.

Findik, D., & Ocak, M. (2016). The effect of intangible assets investments on firms’ financial performance in Turkey. Ege Academic Review, 16(3), 397–414.

Firer, S., & Williams, S. M. (2003). Intellectual capital and traditional measures of corporate performance. Journal of Intellectual Capital, 4(3), 348–360.

Forte, W., Tucker, J., Matoni, G., & Nicolò, G. (2017). Measuring the intellectual capital of Italian listed companies. Journal of Intellectual Capital, 18(4), 710–732.

Ginesti, G., Caldarelli, A., & Zampella, A. (2018). Exploring the impact of intellectual capital on company reputation and performance. Journal of Intellectual Capital, 19(5), 915–934.

Goebel, V. (2015). Estimating a measure of intellectual capital value to test its determinants. Journal of Intellectual Capital, 16(1), 101–120.

Goh, P. C. (2005). Intellectual capital performance of commercial banks in Malaysia. Journal of Intellectual Capital, 6(3), 385–396.

Gross-Golacka, E., Kusterka-Jefmanska, M., & Jefmanski, B. (2020). Can elements of intellectual capital improve business sustainability? The perspective of managers of SMEs in Poland. Sustainability, 12(4), 1545.

Gupta, K., Goel, S., & Bhatia, P. (2020). Intellectual capital and profitability: Evidence from Indian pharmaceutical sector. Vision-The Journal of Business Perspective, 24(2), 204–216.

Guthrie, J., & Petty, R. (2000). Intellectual capital: Australian annual reporting practices. Journal of Intellectual Capital, 1(3), 241–251.

Hermawan, S., Hariyanto, W., & Biduri, S. (2020). Intellectual capital, business performance, and competitive advantage: An empirical study for the pharmaceutical companies. QUALITY Access to Success, 21(175), 103–106.

Inkinen, H. (2015). Review of empirical research on intellectual capital and firm performance. Journal of Intellectual Capital, 16(3), 518–565.

Janošević, S., Dženopoljac, V., & Bontis, N. (2013). Intellectual capital and financial performance in Serbia. Knowledge and Process Management, 20(1), 1–11.

Jardon, C. M., & Martos, M. S. (2012). Intellectual capital as a competitive advantage in emerging clusters in Latin America. Journal of Intellectual Capital, 13(4), 462–481.

Jick, T. (1979). Mixing qualitative and quantitative methods: triangulation in action. Administrative Science Quarterly, 24(4), 602–611.

Jin, Z. J., Shang, Y., & Xu, J. (2018). The impact of government subsidies on private R&D and firm performance: Does ownership matter in China’s manufacturing industry? Sustainability, 10(7), 2205.

Jordão, R. V. D., & de Almeida, V. R. (2017). Performance measurement, intellectual capital and financial sustainability. Journal of Intellectual Capital, 18(3), 643–666.

Kaplan, R. S., & Norton, D. P. (1996). The balanced scorecard: Translating strategy into action. Harvard Business School Press.

Kennedy, F. (1998). Intellectual capital in valuing intangible assets. Team Performance Management, 4(4), 121–137.

Khalique, M., Hina, K., Ramayah, T., & bin Shaari, J. A. N. (2020). Intellectual capital in tourism SMEs in Azad Jammu and Kashmir, Pakistan. Journal of Intellectual Capital, 21(3), 333–355.

Krstić, B., & Bonić, L. (2016). EIC: A new tool for intellectual capital performance measurement. Prague Economic Papers, 25(6), 723–741.

Li, Y. (2016). On the correlation between the proportion of intangible assets and firm performance from Chinese listed companies [Master’s dissertation]. China University of Petroleum, Beijing, China.

Li, Y., & Zhao, Z. (2018). The dynamic impact of intellectual capital on firm performance: Evidence from China. Applied Economics Letters, 25(1), 19–23.

Lu, W. M., Wang, W. K., & Kweh, Q. L. (2014) Intellectual capital and performance in the Chinese life insurance industry. Omega, 42(1), 65–74.

Ma, Y. R., Qiu, J. Y., & Zhang, Y. M. (2017). Research on cross-industry of intellectual capital and enterprise value of listed companies in China. Journal of Central South University (Social Science), 23(5), 85–94 (in Chinese).

Marr, B., Gray, D., & Neely, A. (2003). Why do firms measure their intellectual capital? Journal of Intellectual Capital, 4(4), 441–464.

Marr, B., & Moustaghfir, K. (2005). Defining intellectual capital: A three-dimensional approach. Management Decision, 43(9), 1114–1128.

Muwardi, D., Saide, S., Indrajit, R. E., Iqbal, M., Astuti, E. S., & Herzavina, H. (2020). Intangible resources and institution performance: The concern of intellectual capital, employee performance, job satisfaction, and its impact on organization performance. International Journal of Innovation Management, 24(5), 2150009.

Nadeem, M., Gan, C., & Nguyen, C. (2017). Does intellectual capital efficiency improve firm performance in BRICS economies? A dynamic panel estimation. Measuring Business Excellence, 21(1), 65–85.

Nimtrakoon, S. (2015). The relationship between intellectual capital, firms’ market value and financial performance: Empirical evidence from the ASEAN. Journal of Intellectual Capital, 16(3), 587–618.

Osinski, M., Selig, P. M., Matos, F., & Roman, D. J. (2017). Methods of evaluation of intangible assets and intellectual capital. Journal of Intellectual Capital, 18(3), 470–485.

Pal, K., & Soriya, S. (2012). IC performance of Indian pharmaceutical and textile industry. Journal of Intellectual Capital, 13(1), 120–137.

Phusavat, K., Comepa, N., Sitko-Lutek, A., & Ooi, K. B. (2011). Interrelationships between intellectual capital and performance: Empirical examination. Industrial Management & Data Systems, 111(6), 810–829.

Pucci, T., Simoni, C., & Zanni, L. (2015). Measuring the relationship between marketing assets, intellectual capital and firm performance. Journal of Management & Governance, 19, 589–616.

Pulic, A. (2000). VAICTM – an accounting tool for IC management. International Journal of Technology Management, 20(5–8), 702–714.

Rodov, I., & Leliaert, P. (2002). FiMIAM: Financial method of intangible assets measurement. Journal of Intellectual Capital, 3(3), 323–336.

Sardo, F., & Serrasqueiro, Z. (2018). Intellectual capital, growth opportunities, and financial performance in European firms: Dynamic panel data analysis. Journal of Intellectual Capital, 19(4), 747– 767.

Seo, H. S., & Kim, Y. J. (2020). Intangible assets investment and firms’ performance: Evidence from small and medium-sized enterprises in Korea. Journal of Business Economics and Management, 21(2), 421–445.

Sharabati, A. A. A., Jawas, S. N., & Bontis, N. (2010). Intellectual capital and business performance in the pharmaceutical sector of Jordan. Management Decision, 48(1), 105–131.

Sharma, S., & Dharni, K. (2017). Intellectual capital disclosures in an emerging economy: status and trends. Journal of Intellectual Capital, 18(4), 868–883.

Siboni, B., Nardo, M. T., & Sangiorgi, D. (2013). Italian state university contemporary performance plans: An intellectual capital focus? Journal of Intellectual Capital, 14(3), 414–430.

Smriti, N., & Das, N. (2018). The impact of intellectual capital on firm performance: A study of Indian firms listed in COSPI. Journal of Intellectual Capital, 19(5), 935–964.

Sonnier, B. M., Carson, K. D., & Carson, P. P. (2009). An examination of the impact of firm size and age on managerial disclosure of intellectual capital by high-tech companies. Journal of Business Strategies, 26(2), 1–24.

Stewart, T. A. (1997). Intellectual capital. The new wealth of organisations. Doubleday.

St-Pierre, J., & Audet, J. (2011). Intangible assets and performance: Analysis on manufacturing SMEs. Journal of Intellectual Capital, 12(2), 202–223.

Subramaniam, M., & Youndt, M. A. (2005). The influence of intellectual capital on the types of innovative capabilities. Academy of Management Journal, 48(3), 450–463.

Sullivan, P. H. (2000). Value-driven intellectual capital: How to convert intangible corporate assets into market value. Wiley.

Sveiby, K. E. (1997). The new organizational wealth: Managing and measuring knowledge-based assets. Berrett-Koehler Publishers.

Tonial, G., Cassol, A., Selig, P. M., & Giugliani, E. (2019). Intellectual capital management and sustainability activities in Brazilian organizations: A case study. In F. Matos, V. Vairinhos, P. M. Selig, & L. Edvinsson (Eds.), Intellectual capital management as a driver of sustainability (pp. 119–138). Springer.

Tran, D. B., & Vo, D. H. (2018). Should bankers be concerned with Intellectual capital? A study of the Thai banking sector. Journal of Intellectual Capital, 19(5), 897–914.

Tripathy, T., Gil-Alana, L. A., & Sahoo, D. (2015). The effect of intellectual capital on firms’ financial performance: an empirical investigation in India. International Journal of Learning and Intellectual Capital, 12(4), 342–371.

Tseng, C. Y., & Goo, Y. J. J. (2005). Intellectual capital and corporate value in an emerging economy: Empirical study of Taiwanese manufacturers. R&D Management, 35(2), 187–201.

Urban, B., & Joubert, G. C. D. S. (2017). Multidimensional and comparative study on intellectual capital and organisational performance. Journal of Business Economics and Management, 18(1), 84–99.

Vidyarthi, H. (2019). Dynamics of intellectual capitals and bank efficiency in India. Service Industries Journal, 39(1), 1–24.

Vishnu, S., & Gupta, V. K. (2014). Intellectual capital and performance of pharmaceutical firms in India. Journal of Intellectual Capital, 15(1), 83–99.

Wang, M. C. (2013). Value relevance on intellectual capital valuation methods: The role of corporate governance. Quality & Quantity, 47(2), 1213–1223.

Wang, M. S. (2011). Measuring intellectual capital and its effect on financial performance: Evidence from the capital market in Taiwan. Frontiers of Business Research in China, 5(2), 243–265.

Wang, W. Y., & Chang, C. (2005). Intellectual capital and performance in causal models: Evidence from the information technology industry in Taiwan. Journal of Intellectual Capital, 6(2), 222–236.

Xu, J., Haris, M., & Yao, H. X. (2019). Should listed banks be concerned with intellectual capital in emerging Asian markets? A comparison between China and Pakistan. Sustainability, 11(23), 6582.

Xu, J., & Li, J. S. (2019). The impact of intellectual capital on SMEs’ performance in China: Empirical evidence from non-high-tech vs. high-tech SMEs. Journal of Intellectual Capital, 20(4), 488–509.

Xu, J., & Liu, F. (2020). The impact of intellectual capital on firm performance: A modified and extended VAIC model. Journal of Competitiveness, 12(1), 161–176.

Xu, J., & Sim, J. W. (2017). Are costs really sticky and biased? Evidence from manufacturing listed companies in China. Applied Economics, 49(55), 5601–5613.

Xu, J., & Wang, B. H. (2018). Intellectual capital, financial performance and companies’ sustainable growth: Evidence from the Korean manufacturing industry. Sustainability, 10(12), 4651.

Xu, Q. H. (2017). Effects of intellectual capital and its structure on business performance: An empirical analysis based on information technology industry. Journal of Shandong University of Finance and Economics, 29(4), 32–40 (in Chinese).

Xu, X. L., Chen, H. H., & Zhang, R. R. (2020). The impact of intellectual capital efficiency on corporate sustainable growth-Evidence from smart agriculture in China. Agriculture, 10(6), 199.

Zhang, M., Qi, Y., Wang, Z., Pawar, K. S., & Zhao, X. (2018). How does intellectual capital affect product innovation performance? Evidence from China and India. International Journal of Operations & Production Management, 38(3), 895–914.