Abstract
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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