The Impact of Intellectual Capital on Corporate Performance

In today’s world organisations are learning that the true source of their competitive advantage lies not in assets such as machinery or land; rather, it lies in the knowledge and skills of its employees, the nature of its operational/business systems, and the depth of its networking and customer connections. This research explores the impact of intellectual capital (IC) on a company’s corporate performance by utilising the value-added intellectual coefficient (VAIC) framework to evaluate the performance of IC in two of India’s most globally integrated sectors - IT and Pharmaceuticals. The study uses data for five years from companies listed on the Nifty IT and Nifty Pharma indices between FY 2021 - 22 to FY 2025 26 and analyses human capital efficiency (HCE), structural capital efficiency (SCE), capital employed efficiency (CEE), return on assets (ROA), and market value (Tobins Q). This study found differences in the Intellectual Capital profile of the two sectors, with pharmaceuticals having higher average composite VAIC scores (7.50 for pharma) compared to IT (5.48). The main reason for this larger composite VAIC score in pharmaceuticals is that their scientific workforce generates disproportionately high levels of value per rupee spent on employee cost. Conversely, the CEE associated with IT firms (2.41 for IT; 1.01 for pharma) reflects their lighter operating model and lower overall capital intensities compared to pharmaceutical firms. Overall, the results from multiple regression analysis show that in the case of IT firms, the totality of VAIC's sub-components accounted for 73% of market value variance, while in the case of pharma the composite VAIC is a better predictor of overall market valuation. These findings will provide managers with practical recommendations for better deployment of Knowledge Capital, and they will also help policymakers to foster sectors requiring significant investment in Knowledge Capital.