“Intellectual capital and industrial firms’ growth: Evidence from Jordanian manufacturing listed firms”

This paper deals with the link between intellectual capital and the Jordanian indus- trial listed companies’ growth. This relationship is meaningful for the companies to enhance their interest in intangible assets. The study employed a regression analysis; independent variables are intellectual capital and intellectual capital components (hu-man capital, structural capital, and capital employed). The current ratio is used as a control variable. The study sample, which contains 785 observations, is divided into the firms that generate positive ROE and those that generate negative ROE. The study sample included 77 Jordanian industrial listed firms during the period 2006–2020. The paper found that intellectual capital does not have a significant effect on industrial firm growth and its components do not have a significant effect on industrial firm growth. The main conclusions drawn from these results are that the return on equity do not affect the link between intellectual capital and industrial firms’ growth. The paper recommended applying the study models to other sectors like banks and service sectors and including other control variables like leverage and company size in these models.


INTRODUCTION
Intellectual capital (IC) is information, experience, intellectual property, and knowledge that can be utilized to initiate value (Ulum, 2017). Firms investing in information technology and resources will tend to last and excel. Using intangible assets can improve the potential of firm performance so that it attracts the attention of investors (Soetanto & Liem, 2019). Jordanian manufacturing companies are examples of firms that optimize intellectual capital, so they have excellent performance values in the eyes of investors to get much investment. Therefore, IC has an essential impact on company`s performance and value.
Intellectual capital includes three main components. First, capital employed (CEE) includes the accumulated skills, experience, and the ability to create and innovate. Second, structural capital (SCE) includes the knowledge resources maintained within the entity. Last, human capital (HCE) is created by the people or entity and used in the market (Shubita, 2019).
This study contributes to the previous studies as follows. First, the paper gave evidence of the link between IC and company growth of manufacturing listed firms in Jordan. Most previous research has concentrated on specific sectors in the European countries and the United States. The results of this paper extend the understanding of IC in the process of firm performance in emerging markets. Then, the study investigated the role of profitability in this important relationship.
IC is also the result of transforming tacit knowledge for entities (Al Sharawi, 2021). It is considered an intangible asset which value is like goodwill; the regulators and government have not formulated the regulations for the entity and its measurement (Ahmed et al., 2021).
The study's problem is understanding the role of intellectual capital in enhancing manufacturing firms' growth, which can help managers to utilize and manage intellectual capital investment in their firms. Alqadi and Olimat (2018)  In summary, the intellectual capital concept came as a result of the rather complex and dynamic acceleration in the change of the business environment in all its aspects, as operating institutions are subject to highly competitive conditions and are constantly exposed to economic, social, and political changes. As a result, money, buildings, and inventory are vital. However, the primary and most important capital for institutions is intellectual capital (Allameh, 2018 Therefore, as discussed in the literature review, the trend now is toward evaluating IC as one of the critical assets in a firm. It is necessary to determine the level of its contribution to explaining and analyzing the level of variation in its profitability. When a firm knows the extent of its contribution, it can achieve competitive advantage and sound financial performance. It was also concluded that accounting standards are no longer sufficient to estimate the actual value of a company, which focuses in essence on measuring the value of tangible assets without looking at intangible assets, and the critical impact they add on its financial performance (De Luca et al., 2020). Thus, IC is considered the intangible fuel to achieve an adequate performance of firms. In addition, it helps achieve its objectives of increasing profits, providing the necessary liquidity to cover its needs, and increasing its market share. As a result, a firm enters new markets to market its products through its ability to transform intellectual capital into profits through human capital with skill, ability, and high commitment. This leads to enhanced individual and collective effectiveness, ultimately increasing profits (Meles et al., 2016).

LITERATURE REVIEW AND HYPOTHESES
The last topic related to the purpose of this study is the link between intellectual capital and firm growth. In this field, Ionita and Dinu (2021)  Therefore, this link between intellectual capital and firm growth is essential to the clients or customers of a company that guarantees its continuity and success. Thus, evaluating this relationship is very important in forming necessary knowledge capital. This is the source of the services provided, the method of persuasion, and urge loyalty to it. Relational capital is complete as any part or component of the organization's external environment that contributes to creating added value (Mukherjee & Sen, 2019). The preceding research found that IC is an essential asset for creating market value (Ozkan et al., 2017). In addition, firms with high intellectual capital will be characterized by high-performance levels, as it enhances the level of novelty of the services or products they provide (Rosikah et al., 2018).

METHODOLOGY
Based on the literature review and for achieving the study goal and testing the study hypotheses, the paper used these two models: where G: Firm growth ((total asset year t -total asset year t-1) / total asset year t-1); IC: Intellectual capital; SCE: Structural capital efficiency; HCE: Human capital efficiency; CEE: Capital employed efficiency; CR: Current ratio; ε: error (residual value).
The first model is used to investigate the impact of IC as an independent variable on firm growth, as a dependent variable, and the current ratio, as liquidity is used as a control variable. This model is run for the first hypothesis. The intellectual capital components are used in the second model to examine the incremental information content for intellectual capital components in evaluating the firm growth variance over intellectual capital. Finally, to test the third hypothesis, the study uses the first model and divides the sample into two sub-samples (positive and negative firms based on return on equity) to study the firm profitability effect.

Study variables and sample
The firm growth is measured using a change in total assets equal to total assets for the current year minus total assets for the previous year over total assets for the previous year (Kanakriyah, 2020;Senan, 2019 where CEE is capital employed efficiency computed by dividing VA (the value-added) over the total assets. The VA is measured using (AlNajjar & Riahi-Belkaoui, 1999): , where T is taxes; I is interest; D is depreciation; DE is dividends; R is retained earnings; M is non-controlling interest in the income statement where HC is the personal expenses of the firm; SC = VA -HC.  Firer and Williams (2003) No relationship between intellectual capital, firm performance, and market value.

El-Bannany (2008)
Bank efficiency, the investment in information technology systems, and efficiency in intellectual capital investment variables have significant effects on intellectual capital performance.
Singh and van der Zahn (2008) Corporate governance structure, proprietary costs, and ownership retention are the main determinants of intellectual capital disclosure. Feimianti and Anantadjaya (2014) Positive link between intellectual capital and market value. Nawaz and Haniffa (2017) Positive relationship between Return on Assets (ROA) and intellectual capital. Shubita (2019) No relationship between intellectual capital and the firm market value. The control variable is the current ratio, which equals the total current assets divided by total current liabilities.
The sample for this study is 77 Jordanian shareholders in manufacturing firms during the period 2006-2020. The sample employed consists of 788 firm-year observations. Table 2 shows the descriptive measures after eliminating the outliers. The firms have a low growth rate. The current ratio is about three, so the Jordanian firms do not have any liquidity problems because the current assets can cover the current liabilities by three times. Therefore, for each JD paid to the Jordanian employees, more than two JD come from value-added. Table 3 shows the correlation between the variables. Spearman correlation coefficients between intellectual capital firm growth are positive and significant for the intellectual capital components. Firm growth has a positive and significant association with human capital and capital employed and a negative association with structural capital. Table 4 shows the regression models (OLS) findings of the relationship between firm growth and intellectual capital. The independent variable factor is insignificant, which leads to accepting the first null hypothesis. The adj-R 2 and R 2 also have low values, meaning that IC does not significantly affect industrial company growth. This finding is not consistent with Feimianti and Anantadjaya (2014). This rejection of the first hypothesis can be illustrated by the fact that firms can finance their growth from another source of funds, like liabilities, instead of intellectual capital.    To test the third hypothesis, the sample was divided into firms that generate profits and firms that generate losses (Dambra, 2018). There are no significant differences between the two sub-samples, so the study accepts the third hypothesis (Tables 6 and 7). Thus, return on equity does not affect the relationship between intellectual capital and industrial firms' growth. Tables 8 and 9 refer to the pooled OLS findings for the study models.   Husman test helps in determining which method is better (random effect model or fixed effect model) (Ahmed et al., 2021). Table 10 indicates that the random effect model is better (Gujarati, 2021).   The study tests the multicollinearity using the Variance Inflation Factor. It was about one of the study models, which means there is no multicollinearity in this study (Gujarati, 2021).

DISCUSSION
The findings gave evidence about the association between intellectual capital and firm growth. The liquidity cannot help the Jordanian firms to increase their assets because the high current ratio means firm management did not make the sound investment decision to increase the long-term assets that generate more profits. First, model 1 indicated that IC does not influence firm growth, stating that intellectual capital cannot positively enhance a firm's financial growth and generate wealth in Jordan, an emerging market. Regarding intellectual capital components, model 2 indicates that the three components (CEE, SSE, and HCE) do not positively affect total assets growth, supporting the second hypothesis. In addition, the insignificant CEE coefficients also refer that tangible resources are the vital driving force behind the firm performance in Jordanian companies; several studies reached the same results.
The analysis in model 2 also describes that SCE has an insignificant and negative impact on firms. Jordanian firms tend to over-rely on management mechanisms and lack management competencies, leading to performance deficiencies. However, firms that can efficiently use SCE will own a vital advantage due to its rarity (Pattiruhu & Paais, 2020). In model 2, the negative association between SCE and firm growth asserts that structural capital cost does not help translate Jordanian companies' income in the short run. Amin and The prospect from the results is to apply this critical topic to other sectors like banks and services using other variables (e.g., leverage and liquidity ratios).

CONCLUSION
This study investigated the link between IC and its components and firm growth of the Jordanian listed firms on the Amman Stock Exchange during 2006-2020. IC reflects the value associated with business entities created through the relationship between the entity and its constituents. Intellectual capital can be explained as the firm's ability to maintain associations between suppliers, customers, government, and shareholders. Relationship ability and quality to create new clients are vital factors for the firm success.
The study found that intellectual capital and intellectual capital components do not impact firm growth. Furthermore, profitability did not change these associations. Therefore, the study recommended using several control variables like profit margin and inventory turnover.
The study also found a significant and positive link between IC and intellectual capital components, the highest correlation is with human capital, and the lowest is with structural capital.
The conclusion drawn from the findings of this study is that these findings are not in accordance with the study hypotheses. It can be caused by internal factors such as the lack of optimal resources, the firm's low appreciation of employee skills, and the decrease in efficient human labor use in Jordanian industrial firms. In addition, human resources are replaced with new machines that use systems digitally. However, the findings of this paper are not under theoretical expectations.