The mediating effect of profitability in the relationship between Intellectual Capital and Market value

Abstract

The purpose of this study is to investigate empirically the mediating effect of profitability in the relationship between intellectual ‎capital and market value of companies listed in Bursa Malaysia for the period 2006-2011. This research wanted to establish the mediating effect of profitability on the relationship between intellectual capital and market value through panel data and the Generalized Method of Moments (GMM) model in a longitudinal design. Methodology: In doing so, it applied Pulic’s Value Added Intellectual ‎Coefficient (VAIC™) method as the efficiency measure for measuring intellectual capital. In addition, Sobel’s z-value, Aroian test, Goodman test, and Kenny and Boran approach which were used for testing the hypotheses for quantitative data was drawn from Malaysian listed companies. Results: Profitability is a significant mediator (partial mediator) in the association between the intellectual capital and market value of the companies and increases the relationship between the two variables by 41.8 percent.  Conclusion: This is the first study that shows the mediating effect of profitability in the relationship between the intellectual ‎capital and market value of the companies in Malaysia.