Examining the Relationship between Intellectual Capital and Financial Performance: An Empirical Study of Service and Manufacturing Sector of India

The purpose of present study is to analyse the relative importance of intellectual capital (IC) components in financial performance measures, i.e., productivity, profitability and market valuation respectively. For this purpose, banking informational technology, textile and pharmaceutical industry has been chosen for the study. The results of the panel regression analysis show that IC has a significant impact in increasing the profitability and market valuation of both sectors. The structural capital is not having any significant role to play in increasing the market valuation of both sectors. The results further found that human and structural capital in manufacturing sector shows a negative association with productivity of the companies. The study also found that physical capital is the strongest component in explaining the financial performance and market valuation of both sectors. It is advisable to managers to take more active role in encouragement of development of IC.