The impact of intellectual capital on firm’s financial performance: empirical evidence from Bahrain

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This study contributes to the intellectual capital (IC) area of literature by investigating the impact of IC on the firm’s financial performance of two main sectors in the Bahrain Bourse, financial and service sectors, during five years, 2013–2017. The study employs canonical correlation analysis as a unique statistical method to analyze data gathered from 29 sampled companies, representing 145 firm-year observations over the five years. Two groups of variables are employed. The first represents the firm’s financial performance with two variables (return on equity – ROE and return on assets – ROA), while the second includes three intellectual capital components, namely human, customer, and structural capital. Findings related to the financial sector reveal that all IC components (human capital, customer capital, and structural capital) have positive correlations with firm performance except for the labor costs variable (the sub-variable of human capital), which has a negative correlation with firm’s performance. Human capital is also found to be the most significant component of the IC, while structural capital is reported as the lowest effect on the firm’s performance, consistent with some previous research findings. Furthermore, the services sector results revealed that IC is significantly associated with the firm’s performance. Moreover, two sub-variables of human capital (number of Bahraini employees and labor costs) have the most significant impact on the firm’s performance.

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    • Figure 1. CCA between the first variate and two groups of variables
    • Figure 2. CCA between the first variate for the groups of variables
    • Table 1. Studies on the association between IC and FFP
    • Table 2. Variables definitions
    • Table 3. The canonical correlation (the financial sector)
    • Table 4. Canonical dimensions (the financial sector)
    • Table 5. CCA of the financial sector
    • Table 6. Canonical correlation (the services sector)
    • Table 7. Tests of canonical dimensions (the services sector)
    • Table 8. The CCA for the service sector
    • Formal Analysis
      Abdelmohsen M. Desoky, Gehan Abdel-Hady Mousa
    • Investigation
      Abdelmohsen M. Desoky, Gehan Abdel-Hady Mousa
    • Methodology
      Abdelmohsen M. Desoky
    • Project administration
      Abdelmohsen M. Desoky, Gehan Abdel-Hady Mousa
    • Writing – original draft
      Abdelmohsen M. Desoky, Gehan Abdel-Hady Mousa
    • Writing – review & editing
      Abdelmohsen M. Desoky
    • Conceptualization
      Gehan Abdel-Hady Mousa
    • Data curation
      Gehan Abdel-Hady Mousa