Intellectual Capital, Financial Profitability, and Productivity: An Exploratory Study of the Indonesian Pharmaceutical Industry

The purpose of this research is to investigate empirically the impact of value added physical and intellectual capital (IC) efficiency on a company’s financial performance. This research uses Nazari and Herremans (2007) Extended Value Added Intellectual Coefficient as the efficiency measure of physical and intellectual capital. The data drawn from three out of ten pharmaceutical industries listed in the Indonesia Stock Exchange for the years 2003-2009 was analysed using linear regression analysis. This research contributes to extant intellectual capital literature by evidencing the IC components’ impact on company performance as well as the actual implementation of extended VAICTTM method in empirical study. It is shown that IC components impact profitability of the pharmaceutical industry in a significant and positive manner. Further, it is found that whilst physical capital employed shows a significant positive impact on profitability, the impact of IC components on productivity is not significant.