Impact Intellectual Capital On Performance Of Pakistan Universities Accounting Essay

Nowadays organisations need to work all their resources to prolong success including touchable and intangible assets. The intangible assets are frequently called an organisation ‘s rational capital, which is a critical success factor, non merely for knowledge-intensive organisations, but besides for other organisations. SaA?nchez, Elena and Castrillo, ( 2009 ) defined Intellectual Capital ( IC ) as “ it is about how to allow the cognition of an organisation work for it and hold it make value ” and the rational capital of an organisation is sum of human capital, structural capital and client capital ( Edvinsson and Malone, 1997 ) . This research deepens the apprehension of the function of rational capital in organisational public presentation from the position of universities in developing state like Pakistan. In a different economic apparatus the survey contributes to rational capital literature of developing states where different political, economic and cultural environment provide different chances and challenges to organisations. Universities are major beginning that transportation scientific and proficient cognition to society and to the concern organisations which reveals its important part to economic growing of state. This survey will look into the relationship and consequence of universities ‘ rational capital ( IC ) with public presentation of universities in Pakistan. The IC of university will be used as independent variable and university public presentation as dependent variable. The Skandia Navigator will be taken as mensurating method of IC because it considers both fiscal and non fiscal facets of whole system. Besides descriptive analysis, proving hypotheses correlativity and multiple-regression will be selected and informations will be gathered from both public and private sector universities by questionnaire. The consequence will back up the hypotheses that IC of university has an consequence and relationship with university public presentation as it revealed in other concern organisation.

Introduction:

Nowadays, economic conditions of making concern in developing states are altering really quickly due to grounds like scarceness and depletion of resources, political and economic environment, development of new engineerings and ignorance of importance of cardinal establishments those aid in the growing and development of developing states. Higher educational institutions/Universities are one of critical establishments that can play important function in the development of any state particularly for developing counties. Universities can do a alone part to economic development through knowledge-based activities like new merchandise development, industry formation, and occupation creative activity, beginnings of capital, selling, quality of life, development of societal webs and human capital resources. During last ten old ages, Government of Pakistan is passing a big sum of fiscal resources to transform Universities ‘ system to better quality, so the public presentation and quality of these universities can be compared with local and international universities. Financial and societal force per unit areas besides force universities to pull off their capital in such a manner that produce high quality end product and that can pull local market/industry, investors every bit good as make topographic point in international market to engage their end product in transnational organisations. Capital, in the concern context, refers to any plus that will bring forth future hard currency flows. The most good known plus types are touchable and intangible. Tangible capital refers to the physical and fiscal assets of the organisation ( land, machinery, stock list, workss, trucks, stockholders equity, retained net incomes, working capital, prepaid disbursals, histories receivables, etc ) . Intangible assets are the accomplishments of the work force and its organisation. The term Intangible Assetss can frequently be found in the accounting literature, whereas the term Knowledge Assets is used by economic experts and rational capital ( IC ) is used in the direction and legal literature, but all refer basically to the same thing: “ the intangible value contained in the caputs and relationships of employees, direction staff, clients and other stakeholders ” . IC encompasses non merely the contents of employees ‘ heads but besides the complex intangible construction that surrounds them and makes the organisation map. The footings Intangible Assets, Knowledge Assets/Capital or Intellectual Assets/Capital are frequently used as equivalent word. Stewart ( 1998 ) used the term ‘Intellectual Capital ‘ first clip. There is a consensus that Intellectual Capital itself is composed of three distinguishable types of capital – Human Capital, Structural Capital and Relational Capital.

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aˆ? Human Capital is the handiness of accomplishments, endowment and know-how of employees that is required

to execute the mundane undertakings that are required by the house ‘s scheme.

aˆ? Structural Capital is the handiness of information systems, cognition applications, databases,

procedures and other substructure required to back up the house in put to deathing it ‘s scheme.

aˆ? Relational Capital is the external linkage of the Company with Suppliers and Customers that

enables it to secure and sell goods and services in an effortless mode.

The turning involvement sing intangibles and rational capital ( IC ) has extended from concern houses to public, private establishments, universities and authorities sections but still twosome of researches on universities and research centres to analyze impact of rational capital on public presentation. Universities are alone in its features as that these establishments use intangible as their input and transform it and bring forth intangible end product to market. The public presentation of universities straight affects the public presentation of other organisations because end product of universities is utilized by other organisations. Therefore, mensurating university ‘s public presentation and efficiency are of import in all facets. CanE?ibano and SaA?nchez, ( 2009 ) , SaA?nchez and Elena, ( 2006 ) studied the importance of measurement and pull offing IC in universities and some methodological and conceptual model developed within an Observatory of European Universities ( OEU ) .

The of import ground to mensurate rational capital for university is that rational capital of universities are assumed to be in highest degree and these establishments are the beginning that produce new cognition. For this part Higher Education Commission of Pakistan provided aid and financess to transform universities ‘ system for better public presentation and quality sweetening to do them more comparable, flexible, crystalline, and competitory to lend for spread outing economic growing of Pakistan.

Study Aims:

The aims of this thesis are to analyse some cardinal challenges sing the measuring of the rational capital ( IC ) , impact and relationship of IC with public presentation of a university. A big sum of governmental financess has been given to both public and private sector universities to better system and quality of end product produced. Universities are one of of import establishments of larning industry that have alone features of both input and end product in the signifier of intangibles. Most of research workers have selected IT, Financial establishments, Engineering houses, Hotel, Hospital and Auto industry to analyze the impact of rational capital on organisational public presentation. Although, there is no published survey conducted in Pakistan related to Intellectual capital ‘s consequence on organisational public presentation. Merely few surveies were conducted related to human capital or human development in Pakistan. Few surveies were carried out in developing states like ‘Malaysia, Thailand and Indonesia ‘ related to rational capital coverage and measuring methods used in concern organisations.

Therefore the chief aims for my survey are as follows:

To look into the function of rational capital in the context universities of Pakistan.

To analyze the relationships and impact of IC with university performance/efficiency.

To analyze the function of IC to compare universities of both public and private sector.

To understand effects of IC for developing states.

Problem Statement:

Intellectual capital is a freshly emerging subject. Organizations whether for net income and non for net income in Pakistan viing for market portion and seek to use their resources better to take advantage over their rivals. The dynamic economic conditions force organisations to utilize their resources expeditiously and execute efficaciously. The public presentation of organisations is usually a gage of any state ‘s economic growing. Intellectual capital has a important function in public presentation of organisations ( Bontis, Keow and Richardson 2000 ) . Traditionally, universities have been executing the two chief maps of learning and research for a long clip. In recent old ages universities are required to play the 3rd function of economic and societal development. There are non many researches and instance surveies available, sing rational capital that covers universities of developing state, particularly in the context of Pakistan. Largely the literature focuses around knowledge intensive service companies such as consultancies, car, hotel, infirmaries, telecom, Bankss and retail companies. The impact of rational capital on public presentation in universities of a underdeveloped state was non explored extensively with mention to Pakistan. Therefore, “ it is really important to look into the function and impact of rational capital on overall public presentation and efficiency of universities in Pakistan. ”

Literature Review and Hypothesis Development:

By and large, IC is defined as originative abilities of human encephalon or head. Bontis, Keow and Richardson ( 2000 ) , Ying, Wang and Chang, ( 2005 ) investigated the inter-relationship among the independent variables, human capital, structural capital and client capital and the dependant variable, concern public presentation in both service and non service industry in Malaysia and information engineering ( IT ) industry in Taiwan. Based on Partial least square ( PLS ) , they found that rational capital has a important and substantial relationship with concern public presentation regardless of industry sector. The consequence supported hypothesis that “ Each rational capital component straight and positively affects public presentation ” . Future research may demo that this nexus can be generalized to other states and virtually all industries.

Kok ( 2007 ) described human capital, structural capital and client capital as of import variables of rational capital, which forms portion of the cognition direction enterprises of institutes of higher acquisition. The accomplishments and expertness of university staff as portion of its human capital were focused. Structural capital encompasses facets such as the function of invention and rational belongings rights. Customer capital of the university and the cognition of stakeholders in the field of third instruction are going more of import. The survey consequences done at the Rand Afrikaans University, indicated that the effectual direction of the establishment ‘s rational capital can heighten public presentation and this model could be used with great success at other establishments of higher instruction that wish to mensurate their rational capital.

There is a turning involvement in universities because universitiesA? chief ends are the production and diffusion of cognition and their investings are in research and human resources. Prejmerean and Vasilache ( 2008 ) applied tripartite analysis to the constituents of academic capital at Romanian University of Economics, Bucharest by utilizing Skandia Intellectual capital Value Scheme, with informations ( 2003/2004, 2004/2005, 2005/2006, 2006/2007 and 2007/2008 ) showed the positive dealingss between the assorted constituents of IC of academic. SaA?nchez, Elena and Castrillo, ( 2009 ) , Elena, et.al, ( 2006 ) analyzed the execution of rational capital ( IC ) direction and describing mechanisms in universities and research organisations, traditionally used by private companies. They presented an IC study specially designed for universities, proposing a battery of indexs for resources related to research activity, and discussed current challenges in relation to set uping criterions for universities to pull off and describe on their IC and the troubles in capturing the procedure kineticss.

Peng, Pike, and Roos, ( 2007 ) , referred Intellectual capital as “ valuable, intangible and inimitable resources for value creative activity of a house ” . They linked the IC position with hospital public presentation by utilizing Balance Score Card to concentrate on four facets: 1 ) Clinical use & A ; results ; 2 ) Financial public presentation & A ; status ( fiscal viability, efficiency, liquidness, capital, and human resources ) ; 3 ) Patient satisfaction ; 4 ) System integrating & A ; direction invention ( information usage, internal coordination of attention, and hospital-community integrating ) . The consequences revealed relationship between rational capital elements and public presentation.

Truls, Westnes and Siren, ( 2003 ) evaluated the rational capital of hotels in the Radisson SAS Hotels and Resorts hotel concatenation by utilizing the ICAP methodological analysis and questionnaire, 16 hotels were included in the research ( entire of 254 questionnaires ) . The survey explored the possible relationship between rational capital and concern public presentation. The findings indicated that it is utile to measure a hotel ‘s rational capital due to its possible relationship with concern public presentation. Saldamli ( 2008 ) examined the relation among public presentation factors, quality steps and the rational capital of hotels in Istanbul. A specific scorecard is defined in order to analyse the focal point points, the barriers and the dealingss among the human, structural and client capital schemes. The additive arrested development analysis found the relationship between public presentation and the rational capital and supported the hypotheses: “ Quality public presentation is dependent on Intellectual Capital factors ” and “ Fiscal public presentation is dependent on Intellectual capital factors ” . It was suggested that the concern public presentation can be calculated as an integrating of quality, fiscal and rational public presentations. It was besides observed that fiscal public presentation is no longer sufficient to specify the public presentation of a hotel.

Muhammad and Ismail, ( 2009 ) investigated the efficiency of rational capital and its public presentation in 18 Malayan fiscal companies for 2007. It was found that the banking sector relied more on rational capital followed by insurance companies and Brokerage houses and besides found that rational capital has important and positive relationships with company ‘s public presentation measured by profitableness and Return on Assets ( ROA ) by utilizing ( VAICTM ) . Multiple arrested development analysis was used to look into the consequence of rational capital ( measured by human capital efficiency, structural capital efficiency and capital employed ) on house ‘s public presentation. Zhang, Zhu, and Kong ( 2006 ) used listed car houses in the China ‘s Securities Market ; and examined the relation between rational capital and endeavor ‘s public presentation. They found that IC was holding more and more of import influence on endeavor ‘s accomplishment compared to count capital. The survey used ( VAIC ) method. The consequences showed that affair capital and rational capital play a positive promoting function on the endeavor public presentation, and rational capital plays a more important relationship and function on the endeavor public presentation than physical capital do ; the constituents of rational capital, human capital and construction capital besides play positive promoting functions on concern public presentation. Chen, Cheng and Hwang ( 2005 ) investigated through empirical observation the relation between the value creative activity efficiency and houses ‘ market rating and fiscal public presentation. Using informations from Chinese listed companies and ( VAICTM ) as the efficiency step of rational capital, and used arrested development theoretical accounts to analyze the relationship between corporate value creative activity efficiency and houses ‘ market-to-book value ratios, and research the relation between rational capital and houses ‘ current every bit good as future fiscal public presentation. The consequences support the hypothesis that “ houses ‘ rational capital has a positive impact on market value and fiscal public presentation ” , and may be an index for future fiscal public presentation.

Bramhandkar, Erickson, and Applebee ( 2007 ) measured the impact of rational capital direction on organisational public presentation of pharmaceutical firms/drug industry. From informations of 139 houses, they found houses with the highest degree of intangible assets clearly performed better than those with lower degrees. The high degree houses had significantly better returns and significantly less variableness in stock monetary value. The hypothesis “ Firms within an industry making a better occupation of pull offing IC should see better public presentation ” was used. Research workers measured IC by Tobin ‘s Q. In footings of public presentation, return on assets ( ROA ) , return on equity ( ROE ) , and return on investing ( ROI ) were taken and merely one twelvemonth of information was used. Consequences suggested that a strong relationship exist between successful development of rational capital and organisational public presentation.

Huang and Hsueh, ( 2007 ) analyzed the correlativity between rational capital and concern public presentation. The probe in Taiwan ‘s technology consulting houses was conducted for understanding the acquisition and development position of rational capital and researching the influence of rational capital on concern public presentation. Consequence from sample of 101 Taiwan ‘s technology consulting houses showed that the structural capital and relational capital showed better public presentation, while human capital has poorer public presentation. Iswati and Anshori, ( 2007 ) studied through empirical observation the influence of rational on insurance company ‘s public presentation, particularly fiscal public presentation by utilizing informations from Indonesia Capital Market Directory 2005. The hypothesis “ Intellectual Capital has influence to organisation public presentation in Insurance companies in Jakarta Stock Exchange ” was tested by arrested development theoretical account at 0.05. The chief decision was rational capital has influence on bank ‘s public presentation. Besides that, there was important positive relation between human being capital and organisation public presentation in both low cognition base organisation and high knowledge-base organisation.

These old surveies support that elements of rational capital finally affect public presentation indirectly through their interrelatedness. Based on the cause-effect model, this survey will utilize hypotheses as follows.

“ There is a important consequence of rational capital on performance/efficiency of universities in Pakistan. ”

“ There is a important association between human capital and university public presentation. ”

“ There is a important association between relational capital and university public presentation. ”

“ There is a important association between structural capital and university public presentation. ”

Conceptual Model: Beginning: Huang and Hsueh, ( 2007 )

RESEARCH METHODOLOGY:

The chief aims of this survey are: to analyse some cardinal challenges sing the measuring of the rational capital ( IC ) in university context ; impact and relationship of IC with public presentation of a university. Therefore, survey will utilize quantitative attack by utilizing primary informations from questionnaire as informations garnering tool besides secondary beginnings. The one of the aim is to analyze cause-effect relation between variable in which rational capital will be used as “ forecaster variable ” and university public presentation as “ standard variable ” .

Variables:

Independent variables

Intellectual capital will be taken as independent variable for the survey. Stewart ( 1998 ) defines rational capital ( IC ) in footings of organisational resources associating to wealth creative activity through investing in cognition, information, rational belongings, and experience, while it is defined by Edvinsson and Malone ( 1997 ) as ‘the ownership of cognition, applied experience, organisational engineering, client relationships and professional accomplishments to derive a competitory border in the market ‘ . A figure of bookmans described that IC has three primary interrelated non-financial sub-variables/components: human capital, structural capital and relational capital ( Bontis, 1998 ; Roos et al. , 1997 ; Stewart, 1997 ) , which will be used as sub variables of IC.

SaA?nchez, Elena and Castrillo, ( 2009 ) , defined IC for universities as:

Human Capital is defined as the cognition that the human resources ( Faculty, researches, PhD pupils and administrative staff ) would take with them if they left the establishment.

Structural/Organizational Capital is defined as the cognition that stays within the establishment at the terminal of the on the job twenty-four hours. It comprises university ‘s administration rules, the organisational modus operandis, processs, systems, civilizations, databases, rational belongings, etc.

Relational Capital is defined as all resources linked to the external relationships of the university such as “ clients ” , “ providers ” , R & A ; D spouses, Government, etc.

Dependant variable

The dependant variable for survey will be public presentation of universities. The university public presentation will be measured based on five dimensions i.e. profitableness ( measured by growing and market portion of university ) , quality ( quality of services provided ) , enlargement of university, satisfaction of university members and overall public presentation.

Intellectual capital measuring methods

In old researches, there are assorted attacks used for the measuring of rational capital like rational capital indexes ( Ying, Wang and Chang, 2005 ; Chu et al. , 2005 ) , and Value Added Intellectual Coefficient ( VAICTM ) , Different Market to Book ( DiffMtoB ) , Market Book Ratio ( MBR ) and Economic Value Added ( EVA ) ( Chen, Cheng and Hwang, 2005 ; Goh, 2005 ; Kamaluddin and Sanusi, 2006 ) . Peng, Pike, and Roos ( 2007 ) , Saldamli ( 2008 ) used balanced scorecard, Kok ( 2007 ) Prejmerean and Vasilache ( 2008 ) used Skandia Intellectual capital Value Scheme to mensurate IC for higher acquisition Universities. There are four basic methods to sort measurement theoretical accounts for rational capital are Market capitalisation, Return on assets, Direct rational capital method and Scorecard method.

Scorecard theoretical account: This theoretical account allows for measuring closer to existent inputs, procedures, and outcomes. It is besides peculiarly suited for sensing and rectification of mistakes in alining inputs and procedures with the end products and results. Besides it is the most applicable for mensurating the rational capital of establishments of higher acquisition. There are 15 theoretical accounts in scorecard.

It measures presently unmeasured intangible assets. An version of the Skandia Navigator and the Skandia Value Scheme ( SVS ) seems to be the most appropriate for this survey as the strategy focuses on the present, past and hereafter of an organisation. Although the yesteryear of the organisation ( fiscal coverage ) will be a major constituent of future coverage by the university, as the fiscal willingness to increase rational capital will be straight influence by the handiness of fiscal resources. With the Skandia Navigator the different countries that comprise rational capital are placed within the same model as fiscal capital. Kok ( 2007 ) Prejmerean and Vasilache ( 2008 ) used the theoretical account Skandia Navigator to analyze IC in Universities of South Africa and Romania. This survey will utilize this theoretical account to mensurate IC for universities in Pakistan.

Population and Sample

To carry through survey objectives the population of research will be dwelling of those universities which are recognized by higher instruction committee ( HEC ) of Pakistan both in private and public sector and carry oning PhD plans. There are 132 universities that are recognized by HEC and offering assorted plans in which 73 universities are in public sector and 59 universities in private sector. High competition among these private and public universities forces them to better their quality in all countries and seek to distinguish their establishment on this footing. HEC allows universities to offer high degree grade in all subjects.

Sample will be collected from universities of Islamabad. The sample will dwell of population elements that include module, higher administrative staff and pupils of alumnus and station alumnus degree. These persons are in better place to supply information related to analyze. There are 16 universities in Islamabad in which thirteen are in public sector and three in private sector. The sampling will be indiscriminately drawn from population of both private and public universities. The random sampling is selected because it provides equal opportunity to every member of population to be included in the survey. It reduces prejudices or biass in choosing samples. The tool for this survey will be questionnaire for informations aggregation through primary and paperss from both published and unpublished stuffs will be used for secondary informations. Unit of measurement of analysis will be persons ( pupils, module and high rank administrative officers ) . For this survey, rational capital will be measured based on perceptual experience of module, higher administrative staff and pupils on the rational capital in universities by utilizing questionnaire and SPSS will be the package to analyse informations.

Arrested development Trial

Multiple arrested developments require a big figure of observations. The figure of participants must well transcend the figure of forecaster variables are utilizing in arrested development. The absolute lower limit is that survey has five times as many participants as forecaster variables.

Literature showed that Ying, Wang and Chang ( 2005 ) , Bontis, Keow and Richardson ( 2000 ) used partial least squares to analyze the consequence of IC on public presentation whereas Chen, Cheng and Hwang ( 2005 ) , Saldamli ( 2008 ) , Muhammad and Ismail ( 2009 ) , Zhang, Zhu, and Kong ( 2006 ) , Huang and Hsueh ( 2007 ) , Iswati and Anshori ( 2007 ) used additive multiple arrested development theoretical account. Therefore, following arrested development equations will be used to prove the hypothesis for this survey:

University Performance = b1 structural capital + b2 Human capital + b3 Relational capital + Iµ

Y = b1 X1 + b2 X2 + b3 X3 + Iµ .

Y= University public presentation,

X1 = structural capital of university,

X2 = University ‘s human capital,

X3 = relational capital of university,

Iµ = mistake term

Consequences of old articles ( Muhammad and Ismail ( 2009 ) , Bramhandkar, Erickson and Applebee ( 2007 ) , Huang and Hsueh ( 2007 ) , Iswati and Anshori ( 2007 ) , Peng, Pike, and Roos ( 2007 ) , Zhang, Zhu, and Kong ( 2006 ) , Ying, Wang and Chang ( 2005 ) , Chen, Cheng and Hwang ( 2005 ) , Truls, Westnes and Siren ( 2003 ) , Bontis, Keow and Richardson ( 2000 ) showed that there is a positive relationship among the elements of rational capital and with public presentation of organisations and rational capital has important consequence on public presentation of organisations. It is observed that there is a important positive correlativity among the three dimensions of rational capital ( human, structural and relational ) and concern public presentation. The expected consequences ( both descriptive and illative analysis ) of this survey will demo that important consequence of IC on public presentation of universities and will hold positive correlativity among the dimensions of rational capital of universities and with university public presentation as in old surveies.