The Relationship Between Intellectual Capital and Financial Performance of Companies Listed in the Nairobi Securities Exchange

Abstract

Intellectual Capital is increasingly being recognized as an important component of organisational value. Thus, intellectual capital information is vital for decision making both within the organization and for external stakeholders. This study sought to determine the relationship between intellectual capital and financial performance of companies listed in the Nairobi Securities Exchange summarized into two objectives. To determine value of intellectual capital of firms listed in the Nairobi Securities Exchange and secondly to determine the effect of intellectual capital on financial performance. The research design was descriptive in nature. The population of the study constituted all the 64 companies listed on the Nairobi Securities Exchange. However only 48 companies were analysed as they contained all the variables of the model used in the study. A total of 239 observations were deduced from panel data for the period 2009 to 2013.Regression and correlation analyses were conducted to test the strength and direction of Intellectual capital and other variables that influence financial performance. Intellectual capital was measured by Tobin’s q ratio of Market value to tangible assets. Financial performance was measured by Return on Equity (ROE). The study showed that intellectual capital, measured as the Tobin’s q, had a negative and non-significant effect on ROE. The study therefore concludes that intellectual capital does not influence financial performance of listed firms in Kenya. The study recommends that firms should focus on other parameters that can improve their performance other than intellectual capital.