INTELLECTUAL CAPITAL AND CORPORATE PERFORMANCE IN MALAYSIA: EXPLORING NONLINEARITY AND SYNERGY EFFECTS

Abstract

Inconsistent results of the impacts of intellectual capital (IC) investments on firm performance have raised question regarding the pros and cons of IC investments. However, analyzing the relationship between IC and firm performance from a nonlinear perspective remains under-researched. Hence, this paper aims to examine whether IC investments have a nonlinear relationship with firm performance. This study also examines the interaction effects of IC components on firm performance. We undertake the data that ranges from 2009–2022 on Malaysian public listed firms. The study separates the data into two periods, one without COVID-19 impact (2009–2018) and the other with COVID-19 impact (2019–2022), to examine the potential impact of IC to firm performance with and without the presence of COVID-19 pandemic. The study utilizes panel data regression method to analyze the hypothesized relationships. The results indicate that the relationship between IC components and firm performance is nonlinear when COVID-19 is not present, but this relationship changes in the presence of COVID-19 impact. That is, although continuous IC investments can be a safe investment strategy, their positive impacts on firm performance lose initial strength after a certain critical level of IC investments. Based on the findings, Malaysian public listed firms need to have skilled and intellectual labor force to support the transition from labor intensive industries to knowledge-intensive industries. Moreover, tangible investments play a contributing role in intangible investments. Managers should be careful in investing both physical and financial resources as their marginal costs may outweigh marginal benefits. Overall, this study is helpful to the managers and policy makers in deciding the optimal level of IC investments. The advice can also be taken with respect to combinations of elements of IC.