Measuring Business Excellence: Article Information

Measuring Business Excellence
Intellectual capital performance during financial crises

Sampath Kehelwalatenna
Article information:
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Sampath Kehelwalatenna , (2016),"Intellectual capital performance during financial crises", Measuring Business Excellence,
Vol. 20 Iss 3 pp. -
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http://dx.doi.org/10.1108/MBE-08-2015-0043
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Intellectual Capital Performance during Financial Crises
1. Introduction
Intellectual capital (IC), which is generally understood to encompass the knowledge-
related intangible assets of a firm, has gained recognition as an important strategic asset
in the knowledge-based economy. This recently emerged subset of the resources of a firm
creates competitive advantages and superior performance in a sustainable manner for
modern organizations. Furthermore, the emergence of IC resources allows modern
organizations to maintain their strategies in a highly competitive marketplace while not
being entirely at the mercy of deteriorating levels of scarce physical resources. The
concept of IC nevertheless encompasses various overlooked and complicated issues
related to conceptualizing, defining, measuring and modeling its impact on corporate
performance (Stahle, Stahle & Aho, 2011), on which empirical research could be based.
Corresponding to this remark, this paper isolates an issue in the domain of modeling IC
performance. More specifically, the paper attempts to empirically investigate the
behavior of the impact of IC on firm performance during unstable economic situations
created by financial crises.
The extant IC literature contains a plethora of studies which investigate the impact of IC
on firm performance. However, no attempt has been made to examine whether this
impact is sustainable during a financially unstable situation in the economy. The dearth of
evidence as such and the relevance of dot-com and subprime mortgage crises relative to
selected firms in this study (i.e. banking firms listed on the New York Stock Exchange
[NYSE] from 2000 to 2011) provide a platform to study the impact of IC on firm
performance during financial crises. In this respect, the study attempts to accomplish the
following research objectives:
1. to test whether there are structural breaks created by financial crises during the
sample period of this study; and
2. to investigate the impact of IC on firm performance during the financial crises
that existed during the sample period of this study.
Apart from the motivation for the study as discussed above, the necessity to draw
empirical evidence from the behaviour of the impact of IC on firm performance during
the sample period selected for this study could be further justified by referring to the
variables that reflect the effects of financial crises in a given economy. In this respect,
Dwyer and Lothian (2012) identify stock price and nominal income collapses as key
observations during a financial crisis. Furthermore, Huang and Ratnoviski (2009) stated
that commercial banks across OECD countries, with a share of wholesale funding,
experienced a greater stock price decline during the subprime mortgage crisis. The
impact of the said crises on stock prices of sample firms of this study is evident through
the behaviour of the NYSE Composite Index, an index that measures the performance of
all stocks of the NYSE, and its subset NYSE Financial Index, which measures the
performance of listed financial sector firms (see Figure 1).
[Figure 1 may appear here]
1
According to Figure 1, the decline of the NYSE Composite Index (NYSE ALL) from
2000:Q3 to 2003:Q1 indicates the stock price collapse of sample firms during the dot-
com crisis. Moreover, the decline of the same index from 2007:Q2 to 2009:Q1 shows the
stock price decreases of sample firms during the subprime mortgage crisis. The behaviour
of the NYSE Financial Index (NYSE FIN), which was introduced in 2003:Q1 provides
additional evidence on how the subprime mortgage crisis has affected the stock price of
financial sector firms listed on the NYSE. Reflecting the effect of the said crises on the
revenue variable, Figure 2 presents the behaviour of the average quarterly revenue of the
sample firms of the study. According to the Figure, it is apparent that revenue has
declined soon after the dot-com bubble crash in 2001, and at the beginning of the
subprime mortgage crisis in 2007. Hence, the above-discussed declines of stock prices
and revenue of the sample firms motivates the researcher to examine the behaviour of
the impact of IC on firm performance during financial crises.
The remainder of the paper is organized as follows. Section 2 reviews the relevant
literature for this study; Section 3 offers detailed explanations of the methodological
concerns of the study including sampling procedures, regression models, structural
stability tests, definitions of variables, and hypotheses. Section 4 presents the empirical
findings of the analyses of both the structural breaks induced by the financial crises and
the behaviour of the impact of IC on firm performance during the financial crises. Section
5 presents the conclusion.
2. Literature review
2.1 Intellectual capital
According to Das and Teng (2000), Gibbert (2006) and Michalisin et al. (2004),
resources which are imperfectly mobile, simultaneously valuable, rare, costly to imitate,
and non-substitutable are considered strategic assets. In this relation to this, IC can also
be categorized as a strategic asset because it is recognized as a firm-specific knowledge-
related asset (Stewart, 1997) that bears the characteristics of rarity, inimitability, non-
substitutability and non-observable nature (Riahi-Belkaoui, 2003). Companies own both
tangible assets such as property, plants, equipment and physical technologies and
intangible assets which are needed to run the business. Tangible assets are easily imitable
and substitutable, and can be easily purchased and sold in the open market (Riahi-
Belkaoui, 2003). In distinguishing intangible assets, especially IC, from tangible assets,
characteristics such as rarity, inimitability, non-substitutability and non-observable nature
are very important. Similarly, the assets which possess such characteristics are identified
as strategically important for an organization (Riahi-Belkaoui, 2003). Arguably, the
strategic importance of intangible assets has arisen because firms were inclined to search
alternative resources as they felt that the available physical resources were diminishing
with consumption and they wanted to find a relatively unique asset category with which
to face the intense competition in the market. To assist this construction, Naquiyuddin et
al. (1992) as cited in Bontis et al. (2000, p.90) have stated that knowledge which is
considered to be the essential component of IC, can be used as a strategic tool against
2
competitors. Moreover, based on the Resource Based View (RBV), Kamath (2007)
argues that the idea of utilizing IC as a strategic asset has been further strengthened by
the development of linkages between the intangible resources of the firm and its
performance. Furthermore, the degree to which IC is used in various fields is evident as
most accounting, economics and strategic management literature recognizes IC with
greater interest in recent times (Riahi-Belkaoui, 2003). The above trend of categorizing
IC as a strategic asset has been developed because of identifying and qualifying it as a
strategic asset amongst intangible assets (Mouritsen, 1988 as cited in Riahi-Belkaoui,
2003, p.215). IC is composed of human capital (HC), structural capital (SC) and
relational capital (RC).
HC is the knowledge stock of individuals in an organization (Bontis et al., 1998). Roos et
al. (1997) have documented the fact that employees generate knowledge through their
competence, attitudes and intellectual agility. The same authors have stressed that
instinctive skills, educationally created skills and attitudes of employees cover the
behavioral component of HC. Furthermore, Roos et al. (1997) state that the intellectual
agility of employees’ acts in changing their practices, lead to innovative solutions to
problems in the organization. Similarly, Chen et al. (2005) have identified competence of
employees, commitment, motivation and loyalty as components of HC. Hudson (1993)
defines HC as a combination of genetic inheritance, education, experience, and attitudes
about life and business. Edvinsson and Malone (1997) have defined HC as the sum of the
workers’ skills, experience, capabilities, and tacit knowledge while Davenport and Prusak
(1998, p.49) have stated that “human capital includes the intangible resources of abilities,
effort, and time that workers bring to invest in their work”. In the meantime, Bontis
(1998) argues that human capital is the collective capability of the firm to extract the best
solutions from the knowledge of its individuals. According to Ahangar (2011) human
capital is the largest and most important intangible asset of the firm as it ensures the
provision of goods and services that are required to solve problems of customers.
SC includes all non-human storehouses of knowledge, including databases,
organizational charts, process manuals, strategies, and routines (Bontis et al., 2000).
Previously, Bontis (1998) has stated that SC constitutes of mechanisms and structures of
the organization that support employees to optimize intellectual and corporate
performances. According to Riahi-Belkaoui (2003), SC is the knowledge that belongs to
an organization in the form of technologies, inventions, data, publications, strategy and
culture, structures and systems, organizational routines, and procedures. Moreover, Chen
et al. (2005) have identified innovative capital, relational capital, and organizational
infrastructure as elements of SC, whilst Sullivan (1999) documents financial assets,
buildings, machinery and the infrastructure of the firm as components of SC. Ahangar
(2011) has identified SC as the supportive infrastructure for HC, which includes
organizational ability, processes, data and patents.
Kamath (2007) has pointed out that the term ‘customer capital’ has lately been replaced
by ‘relational capital’. Therefore, elements of both RC and customer capital are
considered in this review of literature. According to Ahangar (2011) RC is relationships
with customers, and networks with suppliers, strategic partners and shareholders. Bontis
(1998) and Bontis et al. (2000), in their classification, have viewed the knowledge
3
embedded in the marketing channels and customer relationships that an organization
develops during the course of conducting business, as the customer capital. However,
Ghosh and Wu (2007) have included relatively similar elements which form customer
capital in relational capital. In this respect, RC comprises of knowledge about market
channels, customer and supplier relationships, and government or industry networks. In
addition to the above classification, Ghosh and Wu (2007) have identified the value of a
firm’s franchise, ongoing relationships with people and organizations, market share,
customer retention, and defection rates as elements of customer capital. According to
Bontis (1999) as cited in Nazari and Herremans (2007, p.597), the elements of customer
capital are customers, competitors, suppliers, trade associations and government bodies
with which organizations develop relationships.
2.2 Measuring IC
The greatest challenge confronted by IC practitioners and researchers is identifying the
value creation of IC in an accurate manner. According to Zeghal and Maaloul (2010), this
challenge is a result of IC being intangible by nature. In addition, finding an appropriate

measure for IC is still a difficult task (Abdulsalam et al., 2011). According to Chen et al.
(2005), Nazari and Herremans (2007) and Tan et al. (2007) IC measures are still in an
exploratory stage and an appropriate measuring approach has not been formulated yet.
The necessity to develop a coherent measuring mechanism for the performance of
intangible assets can be further highlighted as traditional accounting measures are
inadequate for assessing the true performance of firms in relation to asset base
transformation from tangible assets to intangible assets in the knowledge-based economy
(Chu et al., 2011). Therefore, the necessity for measuring the IC of the firm becomes an
important phenomenon due to the blossoming of knowledge intensive firms in the
economy. In this respect, Marr, Gray and Neely (2003) have identified three purposes of
measuring IC. They are:
1. strategy – for developing strategies to sustain the competitive position in the
knowledge economy that exists in a competitive environment;
2. influencing behavior – IC measurement may help to predict the long term
performance of a firm and, in the meantime, helps to refocus the behavior of
managers; and
3. external validation – firm’s obligation to measure and report IC to society and all
other interested parties (legitimacy and stakeholder theories apply in this regard).
Moreover, Marr et al. (2003) highlight that the measurement of IC is useful for an
organization to formulate strategies, assess strategy execution, assist diversification and
expansion decisions, use as a basis for compensation and communicating the measures to
external stakeholders. In addition, IC may be important in the value creation process in
the long run (Kamath, 2007). Therefore, the awareness of the level of IC is useful for
firms to initiate precautions in order to achieve the potential gains in the knowledge-
based economy. Put another way, the necessity for measuring IC is greatly influenced by
the perception of IC as a potential strategic asset according to the RBV of the firm
(Kamath, 2007).
As discussed previously, IC is strategically important and plays a pivotal role in the value
creation process of the firm. Therefore, parties interested in IC have begun to measure IC
4
and its value creation ability, and attempted to compare it with the value creation
efficiencies of physical assets. However, the exercise of measuring IC and the firm’s
investment in IC, and the exact value addition through IC is generally complex
(Dorweiler & Yakhou, 2005; Nazari & Herremans, 2007). Nevertheless, an array of
methods to measure IC has been developed and the emergence of new methods in this
respect is continuing (Nazari & Herremans, 2007).
2.2.1 Methods of measuring IC
Methods to measure IC are still evolving (Tan et al., 2007) and a single most appropriate
measure for IC has not been identified yet. There are two groups of researchers, namely,
cost group and value group who attempt to measure IC. The cost group captures
intellectual essence through the difference between the market and the book value of the
firm. This group uses the market-to-book value ratio as an effective yardstick. The value
group mainly uses the Value Added Intellectual Coefficient (VAICTM) method. The
present study limits its scope to the value creating efficiency of intellectual capital and
uses the VAICTM method to measure IC owing to various advantages of the method as
stated at the end of this sub-section.
Various methods have been devised to measure IC, and such measures include traditional
financial measures (i.e. Tobin’s q), recently developed non-financial performance
measures (i.e. Balanced Scorecard) and the latest methods (i.e. VAICTM method)
(Kamath, 2007). However, Komnenic and Pokrajcic (2012) have stated that none of the
existing measures can fully meet the qualitative criteria or fulfil all the needs of users. In
the early 1990s, various frameworks were developed to measure the performance of a
firm by overcoming weaknesses of financial measures that were adapted to measure
performance of firms (Bourne, Mills, Wilcox, Neely & Platts, 2000). This initiation can
be viewed as having emerged because of the greater focus on intangible resources (Amir
& Lev, 1996). Although a few measures had been developed during the 1990s, the lack
of proper measures to measure IC was observed even in the beginning of the 21st century.
Guthrie et al. (2001), the International Federation of Accountants (1998) and the Society
of Management Accountants of Canada (1998) as cited in Tayles et al. (2007, p.526)
express this very idea. Furthermore, they have emphasized the necessity for developing
new measures to measure IC for organizations where traditional accounting practices are
not competent enough to identify and measure intangibles. Among the formulated
methods, the Intangible Assets Monitor (Dorweiler & Yakhou, 2005) and the Skandia
Navigator (Sveiby, 1997) were developed specifically for recognizing the IC of firms
(Tayles et al., 2007). Even though the Balanced Scorecard by Kaplan and Norton (1996),
another method of valuing IC, had been able to incorporate relational, structural and
human capital perspectives with financial perspective, it can be argued that the Balanced
Scorecard has not been used to measure the IC of a firm only because it has more
strategic focus. Moreover, Abeysekera (2003) and Dzinkowski (2000) have
recommended using measures such as market-to-book value, intangible value and
knowledge capital to assess IC. Similarly, Lev (2001) has emphasized that Value Chain
Scoreboard is a vital tool for managers and investors to measure the impact of intangibles
on corporate performance and valuation.
5
The diversity in the inherent merits of each IC measure ensures its survival but its
demerits warns researchers when selecting a suitable measure for their studies. In
reviewing IC measures, the major criticism against non-dollar measures is that the data
that is used to calculate those measures are subject to the necessities of the firm and
mostly unavailable in audited financial statements (Roos et al., 1997). Lack of
standardization could be a probable challenge for non-dollar measures, especially in
respect to statutory reporting (Andriessen, 2004; Bontis, 2001). Consequently, according
to Firer and Williams (2003), the above-specified limitation of non-dollar measures
restricts the comparison of results among other firms. Furthermore, the lack of awareness
of the contextual differences when developing measures and the questions related to the
external validity of a study, which adopts an existing IC measure can also be cited as
criticisms against available IC measures.
The present study employs the VAICTM method since it is recognized as the most
appropriate approach with which to measure IC (Chen et al., 2005; Chu et al., 2011;
Maditinos, Chatzoudes, Tsairidis & Theriou, 2011; Pal & Soriya, 2012; Tan et al., 2007;
Zeghal & Maaloul, 2010). Moreover, the following advantages can be identified through
the review of literature (mainly, Appuhami, 2007; Chang & Hsieh, 2011; Chen et al.,
2005; Firer & Williams, 2003; Goh, 2005; Mavridis, 2004; Tseng & Goo, 2005) which
adopted the VAICTM method for measuring IC:
• it generates objective, quantifiable and quantitative measurements without using
subjective grading;
• its indicators are useful and appropriate for all stakeholders who may want to
identify and compare IC whereas most alternative measures are categorically
informative for shareholders;
• it exists as a ratio measurement drawn through the input of financial data, and
therefore, it is most suitable to be used along with traditional financial indicators of
the business;
• it offers a relatively simple and straightforward process to compute the value
creation efficiencies of assets. As a result, whoever is familiar with traditional
accounting information may understand and apply it;
• it can be used as a benchmarking method because it is a standardized measure
which can be useful for internal (over a period of time for the same firm) and
external (across sectors and countries) comparison;
• the data needed to compute the VAICTM are publicly and, for the most part freely
available in published financial statements. The reliability of the measure is also
ensured as it uses data from audited financial statements;
• the VAICTM method is consistent with the stakeholder view and the RBV as it uses
a value added approach;
• one of the main assumptions of the method is that human capital is the most
important aspect of IC, which is consistent with all major definitions of IC; and
• the literature on IC measurement and the testing of the relationship between IC and
corporate performance shows that the VAICTM method is the most widely used and
the most popular method among IC scholars.
6
Amongst the fundamental assumptions of the VAICTM, is that HC is responsible for the
performance of a firm. Therefore, the direct and indirect expenses incurred on employees
will predictably create added value as highlighted in Mavridis (2004). The method also
assumes that the value addition (VA) of the firm is recognized based on the stakeholder
theory by accumulating all the value creations to stakeholders (see, for example, Chen et
al., 2005; Nazari & Herremans, 2007; Riahi-Belkaoui, 2003).The VAICTM adopted in this
study is elaborated below:
VA = Personnel costs + interests + depreciation and amortization + taxes +
dividends + retained earnings (after deducting dividends) + equity of
minority shareholders
CE = Capital employed = physical capital (gross fixed assets – accumulated
depreciations) + financial capital (total assets – [physical capital +
intangible assets])
HC = Human capital = Personnel costs
(SC + RC) = Structural capital = VA – HC

RC = Sales, marketing and advertising expenses
Capital employed efficiency (CEE) = VA/CE
Human capital efficiency (HCE) = VA/HC
Relational capital efficiency (RCE) = RC/VA
Structural capital efficiency (SCE) = [(VA-HC)/VA] – RCE
Intellectual capital efficiency (ICE) = HCE + SCE + RCE
Value added intellectual coefficient (VAIC) = CEE + ICE
2.3 Financial crises

After the great depression in 1930, US financial markets were able to maintain a great
economic growth for 40 years without being victimized by any crisis. The reason behind
this is that financial institutions were highly regulated. However, the smooth functioning
of financial markets was hindered by the stock market crash of October 19 1987, which is
known as Black Monday. Because of this crash, the stock market declined from peak to
bottom by 508.32 points (22.6%) and reported a 500 billion dollar loss in one day,
reporting the largest one-day share market drop in history. Following Black Monday, the
dot-com bubble began to run-up during the second half of the 1990’s. Eventually, a
massive bubble in internet stocks named “dot-com” gave rise to a crash during 2000 –
2001 causing a 5 trillion dollar loss in investments. According to Liu and Song (2001),
stock prices of internet companies in the stock market crashed in March 2000. The
overall effect of the dot-com crisis prevailed from March 2000 to October 2002. The
behaviour of the Dow Jones Internet Index provides a clue to the lead up to the dot-com
bubble blast and the time when the effects of the crisis continued in the economy. As
stated in Taffler and Tuckett (2005), the Dow Jones Internet Index rose by 500% since
October 1 1998 and reached its peak on March 9 2000. Eventually, the index reached its
minimum (8%) by October 2002 before starting to increase again.
The recent global financial crisis started in the fourth quarter of 2007 and continued to
disrupt the financial system until the second quarter of 2009. It was still in the recovery
stage by 2011 (Dwyer & Lothian, 2012). Once the crisis spreads in the autumn of 2008,
7
financial markets moved very much in sync and stock prices around the world fell by 30
per cent or more (Bartram & Bodnar, 2009).
3. Methodology
3.1 Sampling procedure
Corresponding to the above stated crises in the US economy during the sample period
(2000 – 2011) of the present study, the main sample can be divided into four sub-
samples. Accordingly, data related to the period in which the dot-com crisis existed (first
quarter of 2000 to third quarter of 2002) forms the first sub-sample (S1) of the study. The
post dot-com crisis period which can also be identified as the pre-subprime mortgage
crisis stage (fourth quarter of 2002 to third quarter of 2007) forms the second sub-sample
(S2). The period (fourth quarter of 2007 to second quarter in 2009) in which major
destructions occurred during the subprime mortgage crisis is the third sub-sample (S3).
The remaining period (third quarter of 2009 to second quarter of 2011) is the fourth sub-
sample (S4) of the study. The fourth sub-sample covers the data related to the period of
the easing off of the subprime crisis effects as a consequence of strong government
interventions to prevent a systemic collapse in economies across the globe. The dates of
the above sample breaks (structural breaks) which were identified according to the
historic events cited in the literature together with the behaviour of IC of sample firms are
presented in Figure 3. Furthermore, Kernel Density estimation, a single factor analysis of
variance (ANOVA) between sub-samples, and a t-test to compare equality of sub-
samples was carried out. A structural stability test was also conducted to ascertain
whether the sample break dates are indeed statistically sound. The results of these tests
are reported later in this paper.
3.2 Regression models

The following dynamic regression models which are recognized in Kehelwalatenna and
Premaratne (2014) as best models to estimate the impact of IC on firm performance have
been adopted in the present study.
, = +
, + , + 3, + 4, + 1, + !2, + #, (1)
1, = +
1, + , + 2, + 4, + 3, + !2, + #, (2)
%2, = +
%2, + , + 2, + 1, + 1, + !2, + #, (3)
&, = +
&, + , + 2, + 1, + 1, + !2, + #, (4)
Where, i = 1,……,N; t = 1,……,T;

and represent scalar and coefficients of each
dynamic panel model, respectively; and # accounts for the disturbance term of
estimations. Dependent variables include productivity (ATO), profitability (ROA1 and
ROE2) and revenue growth (RG) in the respective models. ATO is the assets turnover
8
ratio; ROA1 is preference dividends adjusted net income to book value of total assets
ratio; ROE2 is net income to total shareholders’ fund ratio; and RG is the ratio of
([Current year’s revenue/last year’s revenue]-1) x 100%. The first lag (t-1) of each
dependent variable acts as a valid instrument to overcome the observed issue of
endogeneity when predicting the hypothesized associations. A contemporaneous value
for intellectual capital efficiency (VAIN) obtained through the VAICTM method was used
as the proxy measure for IC in the above models. In addition HC, SC and RC (measured
through the VAICTM method) replace the IC variable of the above models to estimate the
impact of the components of IC on the firm performance of selected firms. The natural
logarithm of the book value of total assets (Size3) and the natural logarithm of market
capitalization (Size2) control the firm size in Model 1 and the remaining models,
respectively. The ratio of total liabilities to book value of total assets (Lev4) controls the
firm’s leverage in Model 1 and 2. Lev1, total debts to total assets ratio, controls the same
effect in Models 3 and 4. Fixed assets to total assets ratio (PC1) and physical capital
efficiency of the VAICTM method (PC3) are proxy measures to control the physical
capital intensity of Model 1, 3 and 4, and Model 2, respectively. Credit to deposit ratio
(Risk2) controls the financial imbalance of all models.
The lagged-dependent variable that induces more heterogeneity is expected to bear a
statistically significant coefficient in the above dynamic panel models. IC, the
independent variable of all models, is expected to have a positive influence on
productivity, profitability and revenue growth of sub-samples. This expectation is
maintained because RBV and IC theory insist that IC generates superior performance for
the firm. Positive signs for the coefficient of Size and PC in all the models is expected.
Risk is expected to have a positive impact in all models. The sign for the coefficient of
firm leverage could be either positive or negative because related literature does not
provide a consensus on the exact link between leverage and firm performance. In this
context, signaling theory posits a positive relationship between firm leverage and
corporate performance, but agency costs theory contends that the same relationship is
negative. The above positive impact arises because of the increased pressure placed on
managers to perform better using debt financing (Jensen, 1986). However, Jensen and
Meckling (1976) and Myers (1977) put forward a different argument regarding the
positive relationship between leverage and firm performance. According to them, the
above-mentioned pressure on managers may lead to a negative relationship between firm
leverage and corporate performance. Furthermore, they explain that higher firm leverage
leads to higher agency costs as a result of diverging interests between shareholders and
debtholders.
Before estimating the above regression models, necessary tests were carried out to
ascertain whether the identified structural (sample) break dates are statistically stable.
The following section provides details on structural stability tests on parameters that were
employed and which were estimated through the previously identified dynamic
regression models for the data of sub-samples.
3.3 Structural stability tests
A consultation of economic literature on testing structural breaks (changes) reveals four
categories of available tests. They are; single known, multiple known, single unknown
9
and multiple unknown. Before selecting the appropriate structural break tests for the
present study, the application of these tests in linear and non-linear models was
considered. Quandt (1958) and Chow (1960) were the first scholars to emphasis
structural change by using the F-statistic in a linear regression model. However, Wald
statistics by Hawkins (1987) and Andrews (1993); optimal test in Andrews and Ploberger
(1994) and fluctuation test of Ploberger, Kramer and Kontrus (1988) are the widely used
tests in the linear context. The establishment of a break point test for non-linear
regression models, which consist of endogeneous variables first appeared in Andrews and
Fair (1988). Wald, lagrange-multiplier type and likelihood ratio-like test statistics
emerged through this influencial paper by Andrews and Fair. As an extension to the
above tests, Andrews (1993) included tests for parameter instability and structural breaks
with unknown change points in parametric models, which estimate through the
generalized method of moments (GMM).
Unlike multiple structural break point tests, which are well developed for linear models,
similar types of tests for non-linear models are yet to be developed. Given this fact, data
for the current study has been partitioned into four sub-samples based on known crises
dates (see Figure 3). The structural stability of parameters estimated through the GMM
procedure over and above sub-samples was examined using the Andrews-Fair (1988)
Wald test and the Andrews-Fair Likelihood-Ratio type test. These two tests are the most
suitable for known break dates in GMM-type estimations and they provide statistical
evidence to prove that the identified crises dates are the correct break dates to partition
the data of this study. The over-identification restriction J-test in Hall and Sen (1999) was
also conducted to examine the structural stability of the over-identifying restrictions
across sub-samples. Details of these three tests are given next.
1. The Andrews –Fair (1988) Wald test (AF1)
This test is used for single known structural break points. It tests the following
hypotheses:
H0 = There are no structural breaks in the equation parameters.
H1 = There are structural breaks in the equation parameters.
The AF1 test statistic is calculated using the following formula:

' = () − ) +, (- / + - / +() − ) + (5)
. 0
Where ) refers to estimated coefficients for sub-sample i, represents number of
observations in sub-sample i and / is the variance-covariance matrix for sub-sample i.
The current study employs the ' test for the GMM specifications used in the analysis
by referring to four break points i.e. 2000:Q1, 2002:Q4, 2007:Q4 and 2009:Q3. The null
hypothesis of no structural breaks can be rejected if p-values of ' statistics are lower
in all estimations across sub-samples.
2. The Andrews-Fair LR type test (AF2)
The null and alternative hypotheses of the ' above are similarly applied in this test.
The LR-type test compares J-statistics of different sub-sample estimates. The test statistic
is computed using the following equation:
' = 12 − (1 + 1 + (6)
Where 12 is the J-statistic calculated with the residuals for the original equation, 1 and 1
are the J-statistics of the two sub-samples use for comparison.
10
3. The Hall and Sen’s (1999) test of over-identifying restrictions (- )
The structural stability of the over-identifying restrictions (instruments of the model are
valid if they are not correlated with the errors) across two sub-samples is tested in the null
hypothesis of this test. If over-identifying restrictions are met in both sub-samples, it
allows for the parameters to take on different values in each sub-sample. In case of the
over-identifying restrictions are rejected in either sub-sample, the model specification
does not hold at least in one sub-sample. The parameter estimates obtained in these sub-
samples should therefore not be considered consistent for the whole sample. In addition,
the whole sample parameter estimates do not apply to sub-samples. The null and
alternative hypotheses of the - are stated below:
H0 = The model is structurally stable across sub-samples.
H1 = The model is not structurally stable across sub-samples.
The null hypothesis stated above is rejected if the p-value of the OT statistic is lower. The
OT statistic is constructed as the sum of two Hansen’s J-statistics for testing the over-
identifying restrictions in each of the two sub-samples.

- = 1 + 1 (7+
Under the assumption related to the zero covariance of partial sums in the limit, this
statistic converges to a chi-squared distribution with the degree of freedom given by 2(q –
p)q is the number of orthogonality conditions and p is the number of parameters to be
estimated.
4. Empirical findings
This section discusses the results of Kernel Density estimations, ANOVA and the t-test to
identify differences between sub-samples. In addition, it presents results of the structural
stability tests, descriptive statistics of variables used in the study, correlation analysis and
estimates of dynamic panel regressions employed for the data of sub-samples.
4.1 Differences between sub-samples
Kernel Density estimations in Figure 4 illustrate the distribution of IC variables in each
sub-sample. The key attribute of the Figure is that the distribution of IC in sub-samples
has distinct patterns which thereby tentatively assist the present study to compare the
behaviour of the impact of IC on firm performance between sub-samples. The Figure also
reveals that the distribution related to the subprime mortgage crisis (S3) is in total
contrast to the other distributions. Moreover, the distribution for S3 indicates a negative
skewness whereas the remaining distributions in the Figure have positive skewness. The
kurtosis and standard deviation of the S3 distribution are comparatively higher than the
other distributions. These patterns therefore indicate that effects of the subprime
mortgage crises have substantially lowered the IC level of sample firms. This effect has
weakened when the subprime mortgage crisis was easing off (see the distribution for S4).
Distributions for IC during the dot-com crisis period (S1) and post dot-com/pre-subprime
mortgage crisis period (S3) appeared relatively similar but different in terms of kurtosis,
skewness and standard deviation. This observation indicates that the influence of the dot-
com crisis on IC level has not created considerable structural differences.
11
According to the results of single factor ANOVA, there is a significant variation in the
data of sub-samples. This conclusion is made referring to the statistically significant F-
statistic (F = 19.01 and significant at 0.01 significance level) for variations between sub-
samples. Hence, a post test (t-test) was carried out to compare the equality of sub-
samples. A two-tailed t-test assuming unequal variances was conducted to test the
following hypothesis:
H0: Difference of means between two sub-samples equals zero (µ1 - µ2 = 0)
H1: Difference of means between two sub-samples does not equal zero (µ1 - µ2 ≠ 0)
Table 1 provides results of the t-test. According to t-values and their statistical
significance in the Table, H0 in each comparison can be rejected. Therefore, it can be
concluded that sub-samples identified for this study are statistically different. Moreover,
the following subsection provides additional evidence for structural differences between
sub-samples before progressing to estimating regressions.
[Table 1 may appear here]

4.2 Results of structural stability tests
Statistics obtained through three tests (i.e. AF1, AF2 and OT) are used in this study to
examine whether the identified sample break dates are stable across four sub-samples.
Related test statistics are presented in Table 2. According to statistics presented in
column 3 of the Table, the null hypothesis of no structural stability can be rejected, as p-
values for ' statistics are lower in all estimates across sub-samples. However, the
significance level of ' in the revenue growth model for all sub-samples are not so low
compared to the other models. Test statistics of ' in column 4 of the Table further
support the outcome of the above hypothesis test. Hence, results of both tests (AF1 and
AF2) affirm that the validity of the identified sample break dates in this study as
statistically significant. Column 5 of Table 2 presents the OT statistics to test the
structural stability of the over-identifying restrictions of dynamic regressions.
Accordingly, the null hypothesis of structural stability in the over-identifying restrictions
between sub-samples cannot be rejected even at the 0.10 significance level. In
conclusion, statistics of three structural stability tests in Table 2 confirm the identified
sub-samples for this study are statistically significant and suitable to carry out
comparisons of regression estimates.
[Table 2 may appear here]
4.3 Descriptive statistics
Table 3 summarizes descriptive statistics for independent and dependent variables of the
regression models used in this study. The main observation on the behaviour of
independent variables in the Table is the decline of average IC values across all sub-
samples (see Figure 3 for the graphical representation of this behaviour). According to
mean values of IC in the Table, 30.5% of the IC level declines between sub-samples for
the subprime mortgage crisis period (S3) and its recovery period (S4). This decline is
comparatively higher than the 17.3% decline of average IC between the dot-com crisis
period (S1) and the post dot-com/pre-subprime mortgage crisis period (S2), and 19.4%
decrease between S2 and S3. This pattern highlights the influence of the subprime
12
mortgage crisis and its aftermath on the deterioration of the level of sample firms. An
observation on the behaviour of average values of IC components reveals that the decline
of the HC level is the main reason for the above highlighted diminution of average IC
level across the sub-samples. In this context, the level of the remaining IC components –
SC and RC – are stable in S1, S2 and S3. In addition to the above-mentioned effect of
HC, a 50% decrease of SC in S4 has contributed partially to a greater decline in the IC
level between S3 and S4, despite a similar percentage increase in RC in S4. The increase
of RC could be the result of a relatively large expenditure on marketing activities in the
crisis recovery stage (S4). A scrutiny of variables that are needed to compute human
capital efficiency – value addition of the firm and personnel expenses – reveals reasons
for the decline of HC, which had subsequently led to a decrease in the level of IC across
the sub-samples. In this respect, an existence of a stable amount of revenue from 2000 to
2004 and a decrease from 2007 to 2011 (see Figure 2) becomes the main reason for the
decline in HC and IC levels as discussed above. This revenue decline eventually
decreases the value addition of the firm, which is the key determinant of human capital
efficiency and the IC level. Furthermore, an observation on the data indicates that a
continuous increase in personnel expenses over sub-samples has an adverse effect on the
level of HC as well as on the IC level.
The mean values of IC and HC in all sub-samples are higher than their medians, thus
indicating that firms included in the sub-samples have a small number of very large
values for these variables. Furthermore, the skewness of IC and its main component, HC,
has become negative in S3 to reveal a change in the distribution of these variables. These
left-skewed distributions indicate that most of the values of the above variables are higher
than average values, while certain firms have much lower values. Leptokurtic
distributions are common for all independent variables of this study but the level of
peakedness of distributions is higher in periods where crises existed (i.e. S1 and S3).
Moreover, the same observation is relevant for S4, as it shows the influence of the
subprime mortgage crisis, which has not yet subsided even though S4 represents a crisis
easing-off period.
The key observation on the distribution of dependent variables of this study is a
discernible decrease in their average values during S3 and S4 by reflecting the decline in
average revenue of firms during the subprime mortgage crisis and its recovery period. In
addition, standard deviation of profitability (ROA and ROE) and revenue growth is also
high in S3 and S4.
Discussion of the descriptive statistics thus far emphasizes that the effects of the
subprime mortgage crisis and its recovery period have contributed to a change in the
distribution characteristics of the independent and dependent variables of this study, in
comparison to relatively identical distributions for variables related to S1 and S2.
[Table 3 and 4 may appear here]
13
4.4 Correlation analysis
Table 4 presents the correlations of IC and its components with firm performance of
identified sub-samples of this study. According to the correlation coefficients in the
Table, IC and HC are significantly negatively correlated with productivity (ATO) of S2.
However, the Table does not provide evidence for any other significant association
between IC and its components with ATO in periods where crises existed (S1 and S3) or
in the recovery stage of the subprime mortgage crisis (S4), except for a significantly
positive correlation between RC and ATO of S1.
The correlation between IC and ROA (profitability from the managers’ perspective) is
weakly positive though the coefficient size is higher in S2, S3 and S4. The reported
correlation between IC and profitability from the owners’ perspective (ROE) is weakly
positive in S1 and S2. Meanwhile, the same association is moderately positive in S3. The
weakest correlation between IC and ROA is observable in the sub-sample which
represents the dot-com crisis (S1). A similar correlation is reported between HC and
ROA in S1. Interestingly, the association between HC and ROA is much stronger in sub-
samples that represented the time of the subprime mortgage crisis and its recovery period
(S3 and S4). This correlation further points out the importance of human capital in
improving profitability during and after a major financial crisis in an economy. In
contrast to HC, SC does not play a major role in improving either ROA or ROE in S3 and
S4. However, SC has a weak positive association with both profitability measures in S1
and S2. RC has a weak negative association with profitability of S1 and S2 but it is not
significantly correlated with profitability (ROA and ROE) of S3 and S4.
IC is positively associated with the revenue growth of firms during crisis easing-off
periods (i.e. S2 and S4), although the same association is inconclusive for periods where
crises existed (S1 and S3). However, HC positively relates with revenue growth of all
sub-samples and the degree of the correlation has increased in S4. The remaining
components of IC – SC and RC – do not account for any statistically significant
correlation with revenue growth.
4.5 Regression analysis

An examination of probable multicollinearity issues among explanatory variables was
conducted before estimating the models. Correlation coefficients for explanatory variable
combinations ranged between -0.31 (IC and PC of S2) and 0.29 (IC and firm risk of S2).
Both coefficients are statistically significant at the 0.01 significance level. Furthermore,
they provide evidence for the unavailability of strong correlations between explanatory
variables. Hence, the issue of multicollinearity is absent in this analysis. Table 5 presents
regression estimates of the impact of IC on firm performance, and Table 6 shows the
estimates of the impact of IC components on firm performance of four sub-samples.
According to estimates in Table 5, IC has a significantly positive influence on the
productivity of sub-samples 2, 3 and 4. The influence of IC on the productivity of S2 is
contrary to the negative correlation reported in Table 4. Furthermore, these positive
relationships corroborate the theoretically expected positive influence of IC on firm
performance. A comparison of IC coefficients of productivity models of four sub-samples
discloses that the coefficient size of the sub-sample, which represents the subprime
mortgage crisis period (S3), is the lowest. In contrast, the same coefficient is higher in
14
crisis recovery periods (S2 and S4). Moreover, the impact of IC on productivity is
statistically insignificant in the dot-com crisis period (S1). An improved positive
influence of IC on productivity in S2, more than that of S4 indicates that the detrimental
effects of the most recent financial crisis are relatively high. Following the same pattern,
HC – the main determinant of IC – has an inconclusive impact on the productivity of S1
together with a smaller positive impact during S3 (see Table 6). SC is a positive predictor
of productivity only in the post dot-com/pre subprime mortgage crisis period (S2).
Meanwhile, the same association during financial crisis periods (S1 and S3) is
significantly negative; and is statistically inconclusive during the recovery period of the
subprime mortgage crisis (S4). The value creating avenue of RC, has a mixed impact on
productivity ranging from a negative effect during S1 and S2; inconclusive relationship
during S3; and a positive effect during S4. The impact of physical capital (PC) is
significantly negative on productivity during S3 (see Table 5 and 6). This proves the
inability of physical capital investments to improve the productivity of firms when a
severe financial crisis exists in the economy. A comparison of IC and HC coefficients

with PC coefficients in both Tables reveals that investments in IC through HC would
benefit firms as these investments improve their productivity during a financial crisis in
the economy.
IC relates positively with ROA – the proxy measure used in this study to perceive
profitability from managers’ points of view – in S2 and S3 (see Table 5). The same
relationship is inconclusive for S1, and significantly negative for S4. As seen in the
productivity model, the positive influence of IC on ROA is the lowest in S3 in
comparison to S2. In contrast to the positive relationship between IC and ROA during the
period of recovery from the dot-com crisis, the same association is reportedly negative
for the recovery stage of the subprime mortgage exposure. Nevertheless, the PC is a
statistically significant positive predictor of ROA and it has a considerably strong impact
on ROA during the subprime mortgage crisis and its recovery period. HC, however,
significantly and positively influences the ROA of all four sub-samples with a stronger
influence in the period between the two crises within the whole sample period. Unlike
those for HC, according to Table 6, the SC and RC coefficients of the ROA model do not
have the expected positive impact on profitability. Instead, the reported signs of these
coefficients are significantly negative, except for an inconclusive result obtained for S3.
[Table 5 and 6 may appear here]
15
In contrast to the theoretically disagreed relationship between IC and ROA for S1 and S4, the
influence of IC on the remaining proxy measure for profitability, ROE (profitability from the
owners’ perspective), is significantly positive in all sub-samples (see Table 5). Moreover, the
observed higher IC coefficient in the ROA model for S2, positions similarly in the ROE model.
The identified positive effect of PC on ROA in S3 has become significantly negative in the ROE
estimation. Similar to the behaviour of the IC coefficient in the ROE model in all sub-samples,
the HC component is also accountable for a significant positive influence on ROE in each sub-
sample. However, SC and RC of all sub-samples have failed to report any significantly positive
influence on ROE. More interestingly, PC, the conventional approach that creates value for
stakeholders continues to have a substantially higher impact on ROE compared to knowledge
resources such as HC, SC and RC (see Table 6).
According to Tables 5 and 6, the impact of IC and its main constituent, HC, on the revenue
growth of sub-samples is identical to the pattern identified in the productivity model.
Accordingly, IC and HC positively influence revenue growth of S2, S3 and S4 whilst the same
influence is statistically inconclusive for S1. Among the above-mentioned positive relationships,
the relationship reported for the subprime mortgage crisis period (S3) is the weakest. This may
be due to the substantial collapse of revenue during the subprime mortgage crisis. On the other
hand, the relationships in the crisis free period (S2) are strongest among the positive coefficients.
SC and RC in S3 maintain theoretically expected positive influences on firm performance, which
is in contrast to the inconclusive impact of SC on S2 and its negative effects in the remaining
sub-samples. This finding affirms the importance of SC and RC during a financially turbulent
situation in the economy where such turbulence has a direct effect on revenue growth of the
banking system. The importance of IC in S2, S3 and S4 is further emphasized, as PC is a
significantly negative predictor of revenue growth in the same sub-samples (see Table 5).
5. Conclusion
The objectives of the study were to test whether financial crises induce structural changes during
the sample period of the study, and to explore the behaviour of the impact of IC on firm
performance during financial crises. For this, banking firms listed on the NYSE from 2000 to
2011 have been divided into four sub-samples covering the dot-com crisis period, post dot-com
or pre-subprime crisis period, subprime mortgage crisis period, and the recovery period from the
subprime mortgage crisis. This division was made based on relevant events documented in the
literature. Furthermore, the stability of the known structural break dates were re-confirmed using
GMM break point tests suggested in Andrews and Fair (1988) and Hall and Sen (1999). The
results of these tests confirmed that there are structural breaks created by financial crises in the
US economy during the sample period. The analysis of data of sub-samples began with
extracting descriptive statistics and relevant correlation coefficients between variables used in
the study. Furthermore, the study employed dynamic regression models for panel data.
Based on the results of these analyses, it could be concluded that there is a deterioration of the
reputation of IC as a strategic assest in the event of the emergence of financial turbulance in the
economy. This deterioration is found in all sub-samples of the study, where the classification of
sub-samples was made based on financial crises in the US economy. Moreover, the aftermath of
the subprime mortgage crisis and the recovery period of the same crisis have expedited the
decline of IC level more than the dot-com and post dot-com crisis periods had done. The root
cause for this behaviour lies mainly in the inability of human capital to enhance the value
16
creation of sample firms regardless of the increase of investment in human capital over the
sample period. Moreover, findings of the study reveal an incapability of IC to enhance
productivity of selected firms during a severe crisis situation (i.e subprime mortgage crisis) in the
economy. This conclusion is not limited to the utilization of IC, but applies to physical resources
as well. The revenue decline during the subprime mortgage crisis is the reason for the above
behaviour. The stated direct influence of the mortgage exposure on selected banking firms could
be justified by the following reason. The dot-com crisis was widespread and thus the effects
were not felt by only a small group of institutions. However, the subprime mortgage crisis was
more central to the finanacial system. Similar to the above-discussed impact of IC on
productivity, the influence of IC on profitability (ROA) during the subprime mortgage crisis is
the lowest in size comparared to the reported positive impacts in other sub-samples. In addition,
the same influence became inconclusive in the dot-com crisis and negative during the recovery
stage of the subprime mortgage crisis. However, the impact of physical capital on ROA of
selected firms inevitably improves their profitability during the mortgage exposure more
effectively than the impact of using IC. Secondary to physical resources during and after the
mortgage exposure, human capital is generally important in enhancing ROA of selected firms
irrespective of whether the sample period represents a crisis situation or not. Parallel to the value
relevance of human capital and physical capital, firms may refrain from investing in structural
capital and relational capital if their intention is to improve ROA through such investments.
Furthermore, it is advisable to shift such investments to human capital under general
circumtances or to physical capital during specific economic crisis situations that have an
influence on the firm.
The above-mentioned profitability enhancement mechanism gets nullified in the event of
changing when recognizing profitability in the owners perspective (i.e. ROE). The reason for
this behaviour is that the predictability of ROE through physical capital is significantly negative.
However, the value relevance of human capital and value irrelevance of the remaining IC
components (i.e. structural and relational capital) remained unchanged in this event as well.
Overall, the increase in the level of IC, preferably through investments in human capital, would
lead to the improvement of profitabilty for owners (ROE) irrespective of whether the economy is
vibrant or not. The effects of IC and human capital on revenue growth of selected firms are
similar to their impacts on productivity. Deviating from general patterns found in productivity
and profitability estimates, physical capital is found to be mostly unproductive across sub-
samples. In addtion, both structural and relational capital are reportedly very useful in enhancing
revenue growth of firms during the subprime mortgage crisis period.
The findings of the study have certain implications on theory, practice and society. According to
the proponents of IC theory (i.e. Stewart, 1997; Riahi-Belkaoui, 2003 and Kamath, 2007), IC
generates competitive advantages and superior performance in a sustainable manner. However,
the empirical findings of the present study reveal an exeption to the theoretical expectation since
the impact of IC on firm performance of selected firms of the study is inconsistent during
financial crises. This behaviour emerges mainly due to the incapability of human capital, the
main component of intellectual capital, to create value for the sample firms during financial
crises. Moreover an additional assumption is required to the resource-based view of the firm, as
intangible assets are proven to be an inefficient driver of value creation during an instability in
the economy. The findings of the study also warn stakeholders about the inability of strategic
assets which bear idiocyncratic chacteristics to create value during financial crises. Overall, it is
17
evident from the study that the heterogeneity in the firm’s resource base has a very minor role to
play in the value creation process during turbulent economic situations. Furthermore, the
findings question the practicality of investing in intangible assets including intellectual capital
during periods of financial crises. In contrast, the findings reveal that physical capital, the
traditional approach for creating value, is a relatively better value creating driver during an
unsteady macroeconomic environment. The findings of the study therefore open a debate as to
how knowledge resources could be managed during unstable economic circumstances in order to
ensure sustainability in superior performance. This deficiency also indicates an inability of IC,
the fourth production factor, to make a social contribution through adding value to all the
stakeholders including investors, employees, government, financial institutions and the society
via corporate social activities. Furthermore, the findings raise the necessity of re-defining the
asset base of organizations which operate in the knowledge economy. The re-definition would
emphasize a trade-off or a proper mix of IC and physical resources, since uncertainity in the
macro environment risks an excessive use of intangibles. Therefore, regulatory bodies would pay
attention to the fact that corporate governance issues caused by excessive use of intangible assets
as a major value creating driver, especially during economic turmoil persists in the macro
environment. On the other hand the empirical findings of the study suggest that financial
institutions would diversify their investment portfolio to include investments in different
countries and regions. Such a diversification would ensure less distortions in revenue so that the
value addition of the firm may not deteriorate even during economic turbulance in its main
business periphery.
Besides the above implications, the study contains several limitations. Although the study
benefits from quantitative research which is the strategy deployed, it is nevertheless vulnerable to
some potential weaknesses that should be highlighted. Prior researchers (i.e. Firer & Williams,
2003; Kamath, 2007) maintained that the financial services sector emphasizes IC resources more
than any other sector. The evidence obtained from this study for the behaviour of the impact of
IC on firm performance during an unsustainable economic environment is based on major
financial crises that occurred in history. The empirical evidence drawn in relation to one of the
world’s largest banking systems provides robust findings. However, caution is nevertheless
required when a comparison is made about IC performance during financial crises outside the US
context and also for firms in any other sector within the US or outside. In order to address the
above limitations, replication studies on other financial crises (i.e. the Asian financial crisis and
the European financial crisis) could be used to test the robustness of the current findings. A
further study is needed to identify a model to manage knowledge resources during unstable
economic conditions exists in the macro environment. In addition, a future study could
investigate strategies and methods to alter the mix of physical and intangible resources to address
the issue of subsequent value distortion evident in this study as a result of using intangibles
during financial crises. Since the present study provides an exception to the theoretically
expected positive influence from IC on firm performance, it opens a possible area of research to
alter the assumptions of IC theory and the resource-based view of the firm. Furthermore, future
studies are required to investigate the amendments to the code of conduct for corporate
governance as the present study provides evidence for the risk of value distortions in intangible
assets if the macro environment is unstable.
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23
Millions (in USD) Index
0
10
20
30
40
50
60
70
80
90
100
0
2000
4000
6000
8000
10000
Q1 2000 Q1 1998 12000
Q3 2000 Q4 1998
Q1 2001 Q3 1999
Q3 2001 Q2 2000
Q1 2002 Q1 2001
Q3 2002 Q4 2001
Q1 2003 Q3 2002
Q3 2003 Q2 2003
Q1 2004 Q1 2004
Q3 2004 Q4 2004
Q1 2005 Q3 2005
Q2 2006
Q3 2005
Q1 2007
Q1 2006
Q4 2007
Q3 2006
Q3 2008
Q1 2007
Q2 2009
Q3 2007 Q1 2010
Q1 2008 Q4 2010
Figures
Q3 2008 Q3 2011
Q1 2009 Q2 2012
Q3 2009 Q1 2013
Q1 2010
Q3 2010
Q1 2011
Figure 1: Behaviour of NYSE Composite and Financial Indices
Figure 2: Behaviour of average quarterly revenue of sample firms

NYSE FIN
NYSE ALL
Figure 3: Structural break dates and the behaviour of average IC of sample firms
7
Starting to ease off the Appearance of the
6 effects of dot-com government intervention
bubble blast to control the systemic
5 collapse from the
mortgage exposure
4 Dow Jones Internet
Index reached its
3 peak (rise of the dot-
Unit
com bubble)
2 Beginning of the subprime
mortgage crisis
1
-1
-2
00 01 02 03 04 05 06 07 08 09 10 11
Year
Figure 4: Kernel Density estimations for the distribution of IC of sub-samples

S1 S2
.35 .40
.30 .35
.30
.25
.25
.20
Density
Density
.20
.15
.15
.10
.10
.05 .05
.00 .00
0 2 4 6 8 10 12 14 16 18 20 22 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
S3 S4
.30 .45
.40
.25
.35
.20 .30
.25
Density
Density
.15
.20
.10 .15
.10
.05
.05
.00 .00
-130 -120 -110 -100 -90 -80 -70 -60 -50 -40 -30 -20 -10 0 10 20 30 -16 -12 -8 -4 0 4 8 12 16 20 24
Tables
Table 1: Results of the t-test

Comparison t - value p-value (two-tail)
S1 and S2 4.404 0.00001α
S1 and S3 5.036 7.32E-7α
S1 and S4 10.45 1.13E-22α
S2 and S3 3.834 0.0001α
S2 and S4 7.361 1.13E-12α
S3 and S4 -2.07 0.022β
Note: significance levels are α = 0.01 and β = 0.05
Table 2: Results of structural stability tests (p-values are in parentheses)

(1) (2) (3) (4) (5)
Crisis dates GMM specification AF1 AF2 OT
2000: Q1 Productivity (ATO) 11.356 7.875 5.678

(0.000) (0.037) (0.926)
Profitability (ROA) 23.658 80.831 2.321
(0.000) (0.000) (0.987)
Profitability (ROE) 26.352 75.636 1.958
(0.000) (0.000) (0.997)
Revenue growth (RG) 9.316 8.792 4.782
(0.042) (0.025) (0.798)
(0.001) (0.019) (0.912)
(0.000) (0.000) (0.895)
(0.000) (0.000) (0.967)
Revenue Growth (RG) 8.754 6.748 3.678
(0.054) (0.048) (0.814)
(0.000) (0.001) (0.895)
(0.000) (0.000) (0.956)
(0.000) (0.000) (0.974)
(0.039) (0.038) (0.835)
(0.002) (0.028) (0.975)
(0.000) (0.000) (0.924)
(0.000) (0.000) (0.947)
(0.062) (0.067) (0.793)
Table 3: Descriptive statistics for independent and dependent variables of sub-samples

Variable Mean Median Standard deviation Skewness Kurtosis
S1 S2 S3 S4 S1 S2 S3 S4 S1 S2 S3 S4 S1 S2 S3 S4 S1 S2 S3 S4
IC 5.65 4.67 3.76 2.61 5.19 4.41 3.86 2.90 1.96 1.74 8.27 2.83 2.83 2.93 -11.4 0.34 16.48 27.04 148.5 21.97
HC 4.89 3.95 3.02 2.21 4.42 3.68 3.16 2.30 2.78 1.71 2.87 2.60 8.02 3.63 -1.8 1.87 131.0 26.36 41.69 30.15
SC 0.74 0.69 0.72 0.36 0.75 0.70 0.67 0.56 0.27 0.12 8.08 10.19 14.13 -1.08 8.67 -23.9 844.6 77.38 565.1 905.9
RC 0.02 0.024 0.02 0.040 0.02 0.020 0.02 0.03 0.03 0.017 0.39 0.45 19.35 2.288 -18 16.7 664.5 16.08 469.0 678.4
ATO 0.02 0.02 0.016 0.014 0.02 0.02 0.02 0.014 0.003 0.003 0.003 0.004 3.93 1.488 3.11 12.8 63.12 13.99 27.10 276.3
ROA 0.003 0.003 0.00003 -0.0003 0.003 0.003 0.001 0.001 0.002 0.002 0.007 0.006 6.509 2.322 -7.9 -4.19 201.2 189.97 94.1 40.52
ROE 0.031 0.030 -0.01 -0.009 0.032 0.031 0.02 0.013 0.017 0.020 0.36 0.334 -3.81 -14.5 -33 -8.75 60.44 622.21 1194 416.6
RG 0.018 0.031 -0.004 -0.0004 0.012 0.025 -0.02 -0.01 0.100 0.088 0.148 0.18 6.58 5.366 6.56 14.65 111.2 91.93 81.8 320.9
Note: number of observations is 2101, 3280, 1337 and 1528 in S1, S2, S3 and S4, respectively
Table 4: Correlations of IC and its components with firm performance of sub-samples

Variable ATO ROA ROE RG
S1 S2 S3 S4 S1 S2 S3 S4 S1 S2 S3 S4 S1 S2 S3 S4
IC -0.004 -0.11α 0.02 0.004 0.024α 0.23α 0.25α 0.19α 0.13α 0.17α 0.47α 0.06 0.04 0.03β 0.03 0.07α
HC -0.001 -0.11α 0.02 0.06 0.024α 0.23α 0.75α 0.67α 0.13α 0.17α 0.48α 0.21α 0.04γ 0.03β 0.08α 0.22α
SC -0.035 -0.04 0.01 -0.01 0.10α 0.11α -0.01 0.013 0.08α 0.04α 0.0005 0.009 -0.007 0.02 -0.001 0.01
RC 0.038γ -0.04α -0.008 0.014 -0.19α -0.03β 0.04 0.01 -0.26α -0.004 0.008 -0.001 -0.03 -0.02 0.001 -0.02
Notes: number of observations is 2101, 3280, 1337 and 1528 in S1, S2, S3 and S4, respectively; levels of significance are α = 0.01, β = 0.05 and γ = 0.10
Table 5: Estimates for the impact of IC on firm performance of sub-samples (t-statistics are in parentheses)
α α α α α α α α α α α α α α α
Lag-dep. 0.183 0.029 0.019 -0.14 0.068 0.132 0.012 0.014 0.18 0.041 -0.08 -0.10 -0.20 -0.23 -0.32 -0.34α
(21.24) (10.85) (17.33) (-124.1) (6.47) (127.3) (36.63) (47.78) (13.97) (23.71) (-87.1) (15.3) (-25.1) (-87.0) (-34.4) (-23.4)
IC -0.00005 0.0006α 0.000007α 0.00001α 0.00004 0.001α 0.000009α -0.00002α 0.001α 0.017α 0.007α 0.002α -0.001 0.018α 0.0005α 0.001α
(-0.44) (37.02) (12.61) (11.81) (1.35) (90.35) (10.30) (-13.04) (3.10) (154.3) (47.9) (76.6) (-1.43) (15.11) (5.49) (13.5)
Size -0.008α -0.001α -0.009α -0.005 α 0.0004α 0.0007α -0.0005α 0.0003α 0.003α 0.005α 0.066α 0.05α 0.007 -0.004 0.019α 0.005α
(-22.71) (-8.46) (-68.42) (-44.3) (3.63) (19.29) (-31.01) (27.50) (2.69) (11.06) (90.0) (20.3) (0.93) (-0.89) (13.81) (3.90)
Leverage 0.003α 0.003α 0.0002 0.009α -0.0008β 0.001α 0.003α 0.0009α 0.003 -0.028α 0.039α 0.37α -0.19α -0.24α -0.41α 0.067α
(10.06) (16.88) (1.48) (61.87) (-2.19) (13.66) (19.47) (5.71) (0.66) (-14.89) (10.8) (94.1) (-3.66) (-8.39) (-21.9) (3.63)
PC 0.07α 0.007α -0.09α 0.05α -0.0003 0.003 0.91α 0.805α 0.29α 0.030 -10.1α 0.46α 1.80β -2.48α -7.40α -0.49α
(4.27) (3.38) (-14.84) (36.25) (-0.49) (0.66) (11.40) (60.5) (6.36) (1.59) (-52.3) (6.77) (2.22) (-7.37) (-15.3) (-10.5)
α α α α α α
Risk 0.001α 0.0007 0.001 0.004 0.0006 -0.005 -0.001 -0.001α 0.0001 -0.016α 0.04α -0.01α 0.05β -0.02 0.05α -0.24α
(8.12) (3.06) (37.12) (32.08) (3.28) (-7.91) (-33.96) (-19.77) (0.54) (-15.47) (27.2) (-6.53) (8.67) (-1.60) (11.9) (-21.9)
J-stat 55.00 168.24 179.5 185.14 50.21 173.24 178.6 186.34 48.36 164.77 186.9 187.73 55.34 165.85 177.9 180.7
P-value 0.21 0.41 0.45 0.32 0.24 0.31 0.47 0.30 0.30 0.49 0.30 0.27 0.19 0.46 0.48 0.40
Instrument
11 20 7 8 11 20 7 8 11 20 7 8 11 20 7 8
rank
m1 -0.57 0.48 -0.51 -0.61 -0.55 0.44 -0.56 -0.62 0.68 -0.42 -0.41 0.48 -0.56 -0.43 -0.53 -0.61
m2 -1.27 1.31 -1.18 -1.41 -1.47 1.37 -1.46 -1.52 1.48 -1.34 -1.35 1.42 -1.46 -1.39 -1.43 -1.47
Notes: number of observations is 2101, 3280, 1337 and 1528 in S1, S2, S3 and S4, respectively; levels of significance are α = 0.01 and β = 0.05; estimates are based on
GMM procedure suggested by Arellano and Bond (1991)
Table 6: Estimates for the impact of IC components on firm performance of sub-samples (t-statistics are in parentheses)
Lag-dep. 0.18α 0.02α 0.01α -0.13α 0.05α 0.13 α 0.018α 0.015α 0.19α 0.03α -0.02α -0.11α -0.20α -0.23α -0.32α -0.33α
(21.25) (9.66) (12.29) (-15.3) (5.77) (12.7) (52.21) (40.38) (12.25) (17.25) (-17.62) (-26.3) (-22.87) (-83.72) (-35.17) (-29.31)
HC -0.0004 0.0005α 0.0001α 0.0003α 0.0001α 0.001α 0.0005α 0.0001α 0.001α 0.021α 0.122α 0.043α -0.001 0.02α 0.0069α 0.018α
(-0.37) (22.19) (55.84) (51.14) (3.34) (74.42) (42.9) (20.65) (3.14) (148.6) (162.3) (467.9) (-1.11) (10.95) (50.31) (64.43)
SC -0.0004α 0.001α 0.0002 0.0005 -0.001α -0.003α 0.0004 -0.00004α -0.029α -0.058α 0.0002 0.0004 -0.028α 0.001 0.001α -0.0004γ
(-6.64) (4.66) (0.60) (1.57) (-10.9) (-23.4) (0.64) (-12.85) (-11.9) (-37.2) (0.42) (0.63) (-7.58) (0.07) (4.26) (-1.79)
RC -0.005α -0.009α 0.0006 0.0001α -0.029α -0.021α -0.0002 -0.0003α -0.47α -0.33α -0.019 -0.01α -0.35α -0.34α 0.029α -0.016α
(-8.47) (-6.79) (0.45) (2.50) (-18.5) (-20.8) (-0.12) (-8.20) (-20.7) (-22.7) (-1.49) (-10.7) (-8.32) (-3.31) (3.61) (-3.89)
Size -0.008α -0.001α -0.009α -0.006α 0.0003α 0.0007α -0.005α 0.0003α 0.003β 0.006α -0.09α 0.03α 0.007 -0.004 0.010α -0.01α
(-22.73) (-9.69) (-78.5) (-56.4) (3.57) (12.56) (-16.2) (25.48) (2.27) (12.3) (-44.7) (12.95) (0.92) (-0.86) (6.39) (-7.57)
Leverage 0.003α 0.003α 0.0006α 0.009α 0.001α 0.001α 0.002α 0.0007α 0.006 -0.02α -0.38α -0.05α -0.19α -0.25α -0.41α -0.05β
(10.63) (17.06) (3.21) (55.07) (6.06) (11.47) (8.91) (4.69) (1.09) (-10.6) (-30.76) (-9.87) (-3.66) (-7.97) (-18.80) (-2.45)
PC 0.072α 0.008α -0.074α 0.05α 0.001α 0.009 0.76α 0.765α 3.07α 0.91α 10.63α 5.31α 1.66α -2.46α -5.54α 0.16β
(4.32) (3.59) (-10.5) (30.50) (4.04) (1.43) (20.4) (38.2) (9.50) (36.06) (21.89) (39.65) (2.06) (-7.21) (-10.64) (2.21)
Risk 0.001α 0.0009α 0.001α 0.004α 0.0006α -0.006α -0.001α -0.0007α -0.007 -0.023α -0.063α 0.02α 0.05α -0.025 0.04α -0.17α
(8.36) (3.68) (42.5) (27.56) (1.82) (-7.18) (-17.8) (-12.39) (-0.18) (-14.4) (-14.66) (11.71) (8.69) (-1.53) (11.18) (-21.53)
J-stat 55.63 163.68 182.3 176.3 47.52 160.9 175.1 186.39 44.90 162.45 183.24 188.24 55.62 164.65 178.70 181.94
P-value 0.18 0.47 0.35 0.47 0.33 0.53 0.50 0.26 0.43 0.49 0.25 0.25 0.189 0.44 0.42 0.34
Instrument
11 20 7 8 11 20 7 8 11 20 7 8 11 20 7 8
rank
m1 -0.46 0.37 -0.47 -0.66 -0.59 0.46 -0.50 -0.57 0.42 -0.42 -0.33 0.42 -0.52 -0.23 -0.35 -0.45
m2 -1.31 1.35 -1.24 -1.45 -1.43 1.32 -1.40 -1.48 1.29 -1.35 -1.43 1.18 -1.44 -1.14 -1.20 -1.33
Notes: number of observations is 2101, 3280, 1337 and 1528 in S1, S2, S3 and S4, respectively; levels of significance are α0.01, β0.05 and γ0.10; estimates are based on GMM
procedure suggested by Arellano and Bond (1991)

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Intellectual capital performance during financial crises

*Related content and download information correct at time of download.

challenge is a result of IC being intangible by nature. In addition, finding an appropriate

(SC + RC) = Structural capital = VA – HC

2.3 Financial crises

3.2 Regression models

Where, i = 1,……,N; t = 1,……,T;

identifying restrictions in each of the two sub-samples.

[Figure 4 may appear here]

[Table 1 may appear here]

4.5 Regression analysis

severe financial crisis exists in the economy. A comparison of IC and HC coefficients

[Table 5 and 6 may appear here]

point. Econometrica, 61(4), pp. 821-856.

Bourne, M. et al., 2000. Designing, implimenting and updating performance measurement

know. Boston: Harvard Business School Press.

Dzinkowski, R., 2000. The measurement and management of intellectual capital: An

Millions (in USD) Index

Figure 2: Behaviour of average quarterly revenue of sample firms

Figure 4: Kernel Density estimations for the distribution of IC of sub-samples

Table 1: Results of the t-test

Table 2: Results of structural stability tests (p-values are in parentheses)

2000: Q1 Productivity (ATO) 11.356 7.875 5.678

Table 3: Descriptive statistics for independent and dependent variables of sub-samples

Table 4: Correlations of IC and its components with firm performance of sub-samples

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