PHD Article of Zeshan Jalil Ghazi
PHD Article of Zeshan Jalil Ghazi
PHD Article of Zeshan Jalil Ghazi
Other scholars have considered the contingent effect of advertising and research
and development (R&D) expenditures, two functions that are fundamental in
determining firm value appropriation and value creation (Mizik & Jacobson,
2003), on the relationship between CSR and firm performance. For example,
Hull and Rothenberg (2008) utilized R&D spending to measure firm innovation
nnovation firms. Servaes and Tamayo (2013) suggested that CSR and firm
value are positively related for firms with higher advertising expenditures (an
indicator of customer awareness). Taylor, Vithayathil, and Yim (2018)
examined the moderating effect of advertising intensity on the link between
CSR initiatives and firm value. However, the extent to which advertising and
R&D expenditure are interrelated, and their influence on the relationship
between CSR and firm performance has not been extensively investigated. Both
advertising and R&D activities play a critical role in generating valuable
market‐based assets (Luo & Bhattacharya, 2009), and engaging in only one of
these aspects may be insufficient to ensure financial success (Mizik & Jacobson,
2003).
Research such as that conducted by Oeyono et al. (2011), Adeneye and Ahmed
(2015), and Cornett et al. (2016). The findings indicate that companies that
conduct CSR activities will improve the performance of the company. However,
contradictory results are found by Aupperle et al. (1985), Smith et al. (2007),
and Crisóstomo et al. (2011) that empirically proves that CSR actually
negatively affect the company's performance. why CSR can affect company
performance. First, resource-based focus on performance as the outcome
measure. Second, resource-based explicitly considers intangible assets such as
knowledge, corporate culture, and company reputation. Intangible assets such as
intellectual capital become one of the company's resources that can create the
competitive advantage of the company. Therefore, intellectual capital is one of
the assets that companies need to consider in creating their competitive strategy.
This research has several contributions. First, theoretically, this study examines
the theory of legitimacy and stakeholder theory that is widely used for research
that aims to examine the relationship between CSR and corporate performance.
By adding intellectual capital as a moderating variable, this study also tries to
prove resource-based views that require a combination of corporate resources
including tangible assets, intangible assets, and capabilities. Secondly, this
study provides empirical evidence that in corporate practice, when wanting CSR
is done to improve the performance of the company, it increases the intangible
assets such as intellectual capital into the need of the company.
This research uses intellectual capital as moderation variable. A variable that are
included in the model because they have a contingency effect from the
relationship between the independent and dependent variables The moderation
variables are added in the study because of conflicting results of previous
studies, so there may be other variables that can moderate the causal
relationship between the variables studied (Hartono, 2014:171). Using
resource-based views, Russo and Fouts (1997) mention there are two reasons
Intellectual capital is truly a new emerging concept. Every organization now
finds logic in measuring, valuing and reporting its intangibles, as they also have
become one of the vital performance indicators and a strategy to gain
competitive advantage. The present accounting system does not support the
measurement and reporting of intellectual capital in most developing countries.
Therefore, there is an immediate need to develop a new accounting standard
that takes into account the growing trends of Intellectual capital. These changes
are more compelling in some sectors with particular reference to service sectors
like banks and financial institutions, Hotels, Tourism sector, Information and
Technology Industry, Education etc., where the role of Human capital is much
more prominent among the other components of intellectual capital.
Therefore, the objectives this study are three folds: Firstly, this study examines
the moderating effect of intellectual capital between corporate social
responsibility and Firm Performance. Secondly, impact of Intellectual Capital
on firm’s performance at the presence or absence of growth opportunities.
Thirdly, this study also seeks to examine whether or not the other factors like
size, Age and Liquidity provide any additional explanation for firm’s
performance for similar scenario beyond traditional belief
Theoretical Framework
Independent
Variables:
Dependent
Corporate social
responsibility Variable
Control Firm
Variables: Performance
Size ROA
Liquidity Tobin’s Q
(Moderator)
Research Methodology
The variables used in this research are classified into four parts as (1) dependent
variables, (2) independent variables, and (3) control variables (4) Moderator.
Dependent variables
Firm Performance
Firm performance (FP) has been taken as dependent variable and is measured
through two methods. One is market based called as Tobin’s Q and the second
one is accounting based measures called as return on assets and return on
equity.
Tobin’s Q (TQ):
It is calculated through formula (Market value of Equity+ book value of Debt) /
(Book value of total asset). Return on assets (ROA) was calculated as net
income divided by total assets.
Where MVE represents market value of equity, BVD represents the book value
of debt and BVTA represents book value of total assets.
TQ = Firm Value
MVE = Market Value of Equity = Outstanding Shares * Share Price
BVD = Book Value of Debt = Total Debt
BVTA = Book Value of Total Assets = Total assets
Return on Assets (ROA)
Return on assets is the dependent variable that shows the relationship between
firm profit and its assts. It shows how much a firm gain profit from its assets.
The same measure technique uses by (Long, Burton, & Cardinal, 2002) and
(Najam-ul-Arifeen, Kazmi, Mubin, Latif, & Qadri, 2014) on their study. The
ROA ratio is computed as follows:
Independent variables
Corporate Social responsibility
Corporate social responsibility has been calculated from following formula by
using financial reports of the firm.
Moderating variable
Intellectual Capital:
The independent variable (Intellectual Capital) have been measured using
Human Capital Efficiency (HCE), Structural Capital Efficiency (SCE) and
Capital Employed Efficiency(CEE) in order to measure the value of intellectual
capital, the efficiency of IC can be measured using VAIC method following
previous studies (Celenza, 2014; Singh et al., 2016; Inkinen, 2015 and
Nimtrakoon, 2015, Sarea & Alansari, 2016)
Variable Formula
Value added (VA) Operating profit + employee cost +
Depreciation + Amortization
Capital employed (CE) Total Asset - Total Current Liabilities
Human capital (HC) Total costs invested on employees
Structural capital (SC) Value added (VA) – human capital (HC)
Human Capital Efficiency HCE = VA / HC
(HCE)
Structural Capital Efficiency SCE = SC / VA
(SCE)
Capital Employed CEE = VA / CE
Efficiency (CEE)
Value Added Intellectual VAIC = HCE + SCE + CEE
Capital (VAIC)
Control variables
Financial Leverage
Debt to Equity Ratio
Debt to equity ratio is very important ratio to measure the financial leverage.
This ratio shows that how much companies use debts to operate its financial
activates. It also shows the relationship of debts and the value of equity. Debt
equity ratio used by (Tugas, 2012), (Opter Tim, 2009) and (Vale, 2011) under
their studies.
The more debt financing is uses by an organization, the more its financial
leverage. Its mean a high amount of financial leverage has a high interest
payment, which negatively impact on the firm performance.
Size
It is equal to the natural logarithm of total company assets at the end of the
fiscal year (Pattiruhu & PAAIS, 2020); (Krisnawati, 2019) and was calculated
by taking log of total assets. Firm size is normally used as a proxy for
competitive position and firms’ advantage within an industry (Johnson et al.,
1997). The size of the company in this study is expressed by total assets, the
greater the total assets of the company will be the greater the size of the
company. The greater the asset, the more capital invested. Company size can be
seen from total assets owned by the company (Suharli, 2006). Company size is
assessed by log of total assets. Log of Total Assets is used to reduce the
significant difference between the size of the company that is too large and the
size of the company that is too small, then the total value of the asset is formed
into natural logarithm, conversion of natural logarithm form aims to make the
data of total assets distributed normally. Company size is measured using the
natural log of total assets.
Age:
It is the difference between the year in which the firm starts and the year in
which the firm exists in the sample (Muritala, 2012); (Hunjra et al., 2014). This
control variable is measured by the natural Logarithm of the year of study
undertaken minus the year the company stands, and is given the AGE symbol.
Liquidity:
Liquidity of a company typically refers to a company’s ability to use its current
assets to meet its current or short term liabilities. It is determined by Current
Ratio which is calculated by dividing current assets to current liabilities to the
total assets of the company at the end of the fiscal year (Rumasukun, Noch,
Pattiasina, Ikhsan, & Batilmurik, 2020); (Marjohan & Arsid, 2020).
This research study has been an attempt to test that whether Pakistani Financial
firms are in favor of making dividend policy that is either supporting the
payment of dividends to the shareholders or retaining this amount for future
investment and also how it affects the association between Intellectual capital,
financial leverage and firm performance. The moderating role of dividend
policy has been checked to see whether backing and revising dividend policy,
the firms’ performance has been affected or it remained the same.
Mode of Analysis:
The following financial performance ratios are used.
Tabular Summary of Definitions of variables.
Study issue Variables Symbol Definitions References
Firms Return on ROA Net income Afza et al.
‘Financial Assets Available to (2008);
Performance Common Iqbal et al.
Shareholders/Book (2012)
value of assets
(Dependent Return on ROE Net Afza et al.
Variables) Equity income/Shareholders (2008);
equity Iqbal et al.
(2012)
Tobin’s Q TQ The market value of Wernerfelt
equity plus book (1997);
value of Afza et al.
liabilities divided by (2008)
book value of Assets
Econometric model
The study used panel data regression analysis by using the data of all 300 Non-
Financial firms listed on PSE for the years 2011 to 2020. This study has
checked for the impact of corporate social responsibility on the performance of
the firm with intellectual capital as a moderating variable. The study uses
corporate social responsibility and Intellectual Capital to describe performance
of the firm through accounting and market base. The control variables consist of
size and Age and Liquidity.
The panel data methodology is used for estimation. We have utilized hierarchal
regression analysis to analyze the regression moderation.
We use the following equations to analyze the results:
Where α, is constant, β1, β2, β3, β4, β5,β6,β7, are coefficients of variables, ε is
error term.