“Intellectual capital components and industrial firm’s performance”

The study aims to determine the connection between intellectual capital (IC) and fi- nancial performance of the Jordanian industrial listed companies. The methodology uses regression models, the IC will be measured using the VAIC model (value-added intellectual coefficient), on the other hand, company performance will be measured using return on equity (ROE). The main model includes financial leverage as a con- trol variable to study the leverage role in the association between IC and return on equity. The study also investigates the incremental information content for intellectual capital components in explaining the change in firm performance. In addition, the size effect is studied to show if the company’s size affects the link between ROE and IC. The sample for this study is 77 Jordanian industrial firms and 788 company-year observations during the period 2006–2020. The study results are as follows: Intellectual capital has an important influence on industrial firm performance; Intellectual capital components have a significant impact on industrial firm performance. In particular, human capital efficiency (HCE) and capital employed efficiency (CEE) have a positive influence on ROE, and structural Capital efficiency (SCE) has a negative impact on firm performance. Lastly, firm size has an effect on the relationship between IC and industrial company performance.


INTRODUCTION
Intellectual capital (IC) contains skills and knowledge inside a firm, and it is a vital resource in the current economy, replacing physical and financial capital. There are several methods suggested to quantify the several aspects of IC (Mehralian et al., 2012).
The reason for selecting the industrial sector is that having unique characteristics like high level of risk, a highly regulatory environment, long development cycles, and high R&D expenses, there is a numerous discernment that Intellectual capital management is a vital economic growth (Lin, 2018;Abdollahi et al., 2020).
Firm performance is based on a firm's ability to manage resources and funds to add value to the firm (Tyeh et al., 2013; Cabral et al., 2018). In addition, performance is a vital input for the firm because it is the output from the entity assets consisting of the financial and the human resources of the firm. Management might be critical and creative to increase the performance of their firms (Galema et al., 2012;Robu & Ciora, 2010).
Financial leverage is a vital factor that affects a firm's financial performance and is used by investors in evaluating performance (Al Sharawi, 2021). This variable will be explored in this study as the firms with a huge level of leverage should focus more on increasing the financial performance quality using intangible assets like intellectual capital (Amar et al., 2020). The research problem is that the association between IC and firms' performance needs to be studied in an emerging market like Jordan.

Intellectual capital (IC) measurement
The IC of any institution is the value that distinguishes it from similar institutions in the same sector, but also gives it a high competitive advantage. The criterion of competition today is information, knowledge and skills, and since we live in the era of technological progress and the age of knowledge, institutions are interested in developing these areas, which express intellectual capital components (Tamunomiebi et al., 2019).
The importance of IC is not just jurisprudence by researchers and specialists in accounting and management, but rather is a real result of the ability of intellectual capital to make a big difference between the institution market value and its book value, so the clear expression of its importance in being a basic weapon for institutions in the business world in today, and a competitive advantage, because intellectual assets represent the hidden force that ensures survival (Anghel et al., 2018

Information content of intellectual capital components
Intellectual capital is one of the modern and developed concepts, and many models have been developed to measure IC to know its components, advantages and disadvantages, and thus the three main elements of IC become clear (Wang et al., 2014).

1) Human capital
Human capital represents the basic component of IC, because it is the main element in the performance of its tasks, and human capital is linked to many factors such as knowledge, capabilities and talents of workers, and their behavior combined with each other to achieve a basic goal for an institution, which is customer satisfaction, which is the source of profit for it (Xu et al., 2021).

2) Structural capital
Structural capital expresses the physical component of technology and the accompanying engineering competencies of software, databases, patents, and everything that workers use to support their business operations and activities, and that the core of IC is based on the knowledge embedded within the firm's patterns (Tahir et al., 2018).

3) Relational capital
Relational capital is the value of an institution's association with the clients it deals with, which is represented by the customer's satisfaction and loyalty, and the extent of customer retention by paying attention to his suggestions and addressing complaints submitted by him, meeting his desires and needs as quickly as possible, participating in its business and deals, and extending bridges of cooperation with him (Shubita, 2019

Intellectual capital (IC) and firm performance
The basis for the success of the financial performance of any institution is the financial information that it obtains, because the accuracy of this information and the speed of obtaining it contributes to influencing the financial decisions taken by it, which in turn affects the value of its market shares, but the financial information alone is not enough, but rather it must be employing them within indicators capable of determining the financial performance of an institution.
Several studies investigated the important association between intellectual capital (IC) and company performance (e.g., Ali 2011) found a positive association between intellectual capital and profitability and between productivity and revenue growth in listed manufacturing industry firms in Thailand. The same findings were found in ASEAN countries by Nimtrakoon (2015). Sardo and Serrasqueiro (2017) revealed that the firms might take advantage of intellectual capital to improve a firm's market value and financial performance.

AIMS AND HYPOTHESES
The aim of the study is to investigate the association between IC as an intangible asset of a firm and the firm's performance; this will determine the Jordanian industrial firms' investments in intangible assets as an important resource for industrial firms, as well as tangible assets.
Based on the literature review and to achieve the study goal, the study's hypotheses are as follows: H 01 : IC has not a significant impact on industrial company performance.
H 02 : IC components have not a significant impact on industrial company performance.
H 03 : Firm size has not affected the association between IC and industrial company performance.

METHODS
To test the study hypotheses, the following two models were used: The first model investigates the intellectual capital impact as an independent variable on return on equity as the dependent variable; financial leverage will be used as a control variable. This model will be used for the first hypothesis. In the second model, the intellectual capital components will be used to study the incremental information content for intellectual capital components on explaining the return on equity performance variance over the intellectual capital. To test the third hypothesis, the first model will be used and the sample will be divided into two samples; small and big companies based on the total asset to study the firm size effect.

Study variables
Firm performance will be measured using ROE, which is equal to net income over average total eq-uity. In this model, three components will be used to measure intellectual capital (Shubita, 2019).
CEE is Capital employed efficiency that will be computed by dividing the value-added into the total assets. The VA is measured using AlNajjar and Riahi-Belkaoui's (1999) equation: The control variable is the leverage ratio (total liabilities over total assets).

Study sample
The research sample includes 77 Jordanian shareholder manufacturing firms listed on the Amman Stock Exchange from 2006 to 2020. The sample includes 788 company-year observations.

RESULTS
Different kinds of statistical tests were performed where descriptive analysis, correlation, and OLS regression analysis were used. The descriptive test provided useful information about the dataset, and the correlation test helped in finding out the relationship between the variables used in regression models. OLS regression model was used to test the hypotheses.

Descriptive analysis
Descriptive statics are shown in Table 1 Table 2 shows the correlation matrix, Spearman and Pearson correlation coefficients between intellectual capital and return on equity are positive and significant. For the intellectual capital components, the three elements have a significant relationship with ROE, the HCE has the highest correlation coefficient (67.2%). One can also notice a negative and significant relationship between the leverage ratio and profitability, which means that the firms that rely more on debt to finance their asset generate losses.

OLS analysis
The independent variable is important and the adj-R 2 is 22.3%, which leads to rejecting the first null hypothesis, so IC has an important effect on industrial firm performance. This finding suggests a firms' efficiency importance in using structural, human, and physical capital efficiently and effectively to encourage higher firm performance. This result is in line with those of Tarigan et al. (2019) and Chan (2009). The table also indicates that the leverage is negative and significant, which means that the firms that depend more on an external source of funds will suffer from a loss.  The coefficients on intellectual capital are positive, referring that companies with greater intellectual performance have better profitability. In this second model, the intellectual capital components are the independent variables, this breakdown increases the model explanatory power from 22.3% in model 1 to 50.3% in the model 2 as shown in Table 4. This will lead to the rejection of the second null hypothesis, so IC components have a significant impact on industrial firm performance.
The higher structural capital efficiency influences a firm's performance. This explained by the manufacturing firms' nature, where intangible assets may be more dominant, as the entity operations depend on machines. In addition, investors focus on the value of the capital employed and structural capital (SCE) of firms.
This result indicates that the three elements of intellectual capital are better than the aggregate intellectual capital measure in interrupting firm performance.
To test the third hypothesis, Table 5 and Table 6 are used that relate to the small and large firms' findings, which state that the Adj-R 2 for model 1 is higher for large firms than for small firms. This analysis leads to rejecting the third hypothesis, so the firm size has affected the relationship between intellectual capital and industrial firm performance.    Table 7 refers to the pooled OLS findings for the models.

Hausman test
Hausman test helps determine which method is better, fixed effect model or random effect model (Ahmed et al., 2021).  The analysis in model 2 also describes that SCE has a negative impact on a firm's performance.
Jordanian firms tend to rely on management mechanisms and lack management competencies, which leads to deficiencies in performance. However, firms that are efficiently able to use SCE will own a vital advantage due to its rarity (Pattiruhu & Paais, 2020 The definition of future prospects helps future studies include other variables such as working capital, inventory turnover, and balance scorecard, and it is suggested to study this important issue in other sectors like insurance, banking and service sectors.

CONCLUSION
The study aims to examine the important association between the investment in intangible assets in emerging markets. The total assets of any firm include current assets, long-term assets, and intangible assets. Intangible assets are like the non-current, they generate future benefits for firms but without having physical substance.
Industrial firms generally have a huge proportion of fixed asset investments and depend on them in their operations. This study explored the modeling firm's value based on IC and on manufacturing firms. The results indicate that the intellectual capital components would significantly influence financial performance.
The study results also indicate that CEE, SCE, and HCE have a significant effect on firms' profits. Human capital and physical capital make the same contributions to firms' performance. Considering the impact of intellectual capital on firm performance, model 2 shows that firms' performance is positively correlated only with HCE and CEE, whereas SCE has a significant negative influence on company performance. From this it is concluded that investment in intellectual capital brings competitive advantages to Jordanian manufacturing firms. Thus, HCE, CEE, and SCE are found to make vital contributions to VA for listed Jordanian firms.