Policy Implications of the Research

The measurement and benchmarking of IC efficiency have had enormous popularity over the last two decades. This is because different theories such as RB and RD, emphasize the importance of intangible resources for the competitive advantage of a firm. The topic has received further attention since the 1997 Asian financial crisis and 2008 global financial crisis as firms realized that relying solely on physical assets poses significant risks to survival of firms. Therefore, the current study’s findings provide several policy implications relevant to policy-makers as well as academicians.

The study’s findings exhibit that IC efficiency varies across different regions, i.e., developed, emerging and frontier markets. Our findings show that IC efficiency is better for firms in developed markets than their counterparts in emerging and frontier markets. Continuing the argument by Kolachi and Shah (2013) that IC is necessary for small and big firms and firms in developed as well as developing countries, our findings show that policy makers in emerging and frontier markets can benchmark IC efficiency scores from developed markets. This benchmarking will help firms in emerging and frontier markets increase their IC efficiency to compete in the free-trade agreements era (Burgman & Roos, 2007). These findings might also be useful for potential investors who can determine future IC efficiency of firms before making investment decisions. Investors today are concerned about intangibles’ performance along with financial performance. The findings can also be used by rating agencies to evaluate the performance of intangibles and compare IC performance of the firms from different regions.

This study reports a significant, positive relationship between IC efficiency and firm performance, which endorse RB theory. This implies that an increase in IC efficiency leads to better firm performance. Different regulators such as securities and exchange commissions and governments can evaluate IC efficiency as part of firm performance for regulating or listing-delisting of firms. These findings are particularly important for firms’ management whereby they can increase investment in intangibles to build a sustainable competitive advantage under the RB theory. Corporate intangibles reporting on annual reports has always been limited because of strict financial reporting standards (Sujan & Abeysekera, 2007; Carvalho et al., 2016). Many authors agree that this issue is pending partly because of underestimation of IC importance (Sakakibara et al., 2010). Mixed results from limited studies have further aggravated the issue. This study’s findings provide strong evidence with regard to the importance of IC efficiency that can enable the authorities to alter regulations related to intangibles’ reporting.

This study reports a significant, positive relationship between human capital efficiency and firm performance, which endorses RD theory. This implies that an increase in HCE leads to better firm performance. These findings are contrary to those of many studies (Firer & Williams, 2003; Chan, 2009b; Zéghal & Maaloul, 2010; Kamal et al., 2012), which are limited to one country, smaller sample size and/or rely on static estimation. These studies implicitly argue that investment in human resources is considered an expense hence not important for the firms. The findings, however, show that human resources contribute significantly towards value creation and should be considered as an investment as argued by Frederickson et al. (2010). These findings are useful for owners (shareholders) who should consider human capital as a strategic resource and hence emphasize its training and development. Furthermore, these findings are particularly important for regulators in service-oriented industries, such as banks, where humans directly determine the quality of products and services being offered. Regulators in these industries should set some minimum standards related to human capital development.

This study also reports a positive, significant relationship between INVCE and firm performance, which endorses OL theory. This implies that an increase in INVCE leads to better firm performance through innovation in products and services. These cross-region findings will be useful for different stakeholders. For example, owners (shareholders) can realize the importance of R&D and increase investment in innovation capital to bring in innovation in products and services to compete in the global market. Since R&D is important for specific industries, such as information technology and pharmaceuticals, regulators of these industries should provide special incentives such as tax incentives on R&D investment to bring in more innovation in products and services as argued by Shah (2006). This is similar to the argument by Hall and Van Reenen (2000) that tax incentives in R&D by the government leads to more R&D accumulation in OECD countries.

This study shows that the relationship between IC and firm performance is dynamic. Tests such as the dynamic OLS and Wooldridge (2002) Test for strict exogeneity show that the relationship between IC and firm performance encounters some econometric problems such as endogeneity. Hence, we use the dynamic panel GMM to overcome this deficiency of not providing efficient, unbiased results. Thus this study enables policy-makers to understand that IC efficiency not only affects firm performance but the opposite is also true. Furthermore, the reverse causal relationship43

shows that policy-makers should consider IC accumulation as an ongoing process hence the continuation of investment in IC resources is necessary.

43 _{As discussed in chapter 5 that IC leads to better performance in future and past better firm performance also}

The VAIC model has been well accepted and used by academicians as well as corporates but the model has also been criticized, in general, and its structural capital measure, in particular. We replace structural capital with Innovation capital (R&D, as its proxy). We then apply the new A-VAIC to five developed and five emerging markets and note that these adjustments provide theoretically consistent results. Human capital and innovation capital, for example, are positive and statistically significant in almost all markets. Hence, the A-VAIC can be used by the regulators to measure IC efficiency across firms and industries. Since recent studies44 _{prohibit the use of the VAIC model in its}

original form, future researchers can use the A-VAIC model in their research.

Finally, the positive relationship between IC and firm performance during the 2008 global financial crisis indicates that IC efficiency remained unchanged during the crisis. This implies that firms can use IC to increase their value creation when other financial assets become difficult to introduce because of limited funds. This argument is consistent with the findings of Sumedrea (2013) who concludes that IC can be used as a tool for survival during financial turbulence. This finding is also useful for the regulators who can formulate strategies related to the effective use of IC resources during financial crises.