Firms’ Size as a Contingency Approach in the Relationships of Intellectual Capital, Capital Structure and Financial Performance

Abstract

The aim of this study is to examine the influence of firm size on the relationship between intellectual capital, capital structure and financial performance of Malaysian construction firms. The empirical data were taken from 41 construction firms listed in the main board of Bursa Malaysia and observed over the five-year period of 2011 to 2015. This study is deemed necessary as the findings of prior studies on the relationship between intellectual capital, capital structure and financial performance, had documented mixed and inconclusive result, thus, the inclusion of firm size as a moderating variable may modify (strengthen or weaken) the above relationships. Intellectual capital, capital structure, financial performance and firm size are proxy by VAIC Model, total debt ratio, return on equity and log of total asset, respectively. The result shows a positive moderator effect of firm size on the relationship between intellectual capital and financial performance in construction. The findings suggests that firms’ value creation capability increases with firms’ size, thus larger firms’ are in a better position to generate profit. The concentration on one industry and the relatively narrow five-year period for data collection are the main limitations of this study. The findings of the research will contribute towards the literature.