Title

Intellectual capital and organizational performance: An empirical study of the pharmaceutical industry

Document Type

Article

Publication Date

12-1-2007

Abstract

This paper directly measures the impact of intellectual capital management on organizational performance. Although this is an area widely studied in the literature, the nature of most of the work to date is to focus on specific aspects of intellectual capital (human, structural, or relational capital) and their impact on performance. This study specifically looks to identify firms that manage overall IC, whatever its nature, better than competitors. We then ask the question, do these firms actually see market results better than those of competitors?. In order to do this type of analysis, we felt a need to focus on a specific industry. If wide differences do exist between industries in terms of physical capital needs and human, structural, or relational capital needs, then random firms are harder to compare. Those within a single industry, such as pharmaceuticals, should have relatively similar structures in relation to all these needs. We collected data on 139 firms in the pharmaceutical industry. We sorted and divided the sample by the difference between market and book value (a measure for intellectual capital management success) and then looked at return on assets and beta. The firms with the highest level of intangible assets clearly performed better than those with average levels (small levels were eliminated from this specific study). The high level firms had significantly better returns and significantly less variability in stock price. As a first cut, this study had very promising results. We intend to repeat it for other industries, trying other measures and other divisions of the data. Although industry-specific is obviously the initial way to go, we also intend to perform some cross-industry comparisons with the measures we develop. We believe the results of the full research program will be significant to practice and will provide substantial support to those championing better management of intangible assets within firms.

Publication Name

Proceedings of the European Conference on Knowledge Management, ECKM

First Page

147

Last Page

151

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