The impact of intellectual capital on firms’ competitive advantage: An empirical study of listed integrated oil companies

Abstract

The aim of the thesis is to examine the relationship between intellectual capital and competitive advantages/disadvantages within firms. A sustained competitive advantage is defined as sustained superior performance compared to their peer companies. The dataset is panel data, using financial data from eight integrated global oil companies from the time period 2004-2015. Our sample companies are in a capital-intensive industry, producing identical products. This stands in contrast to most previous studies of intellectual capital, which were performed on competence-based industries creating unique/differentiated products. Crude oil is a typical commodity at the other end of the product spectrum, where all units of production are identical, regardless of who produces them. Due to the high capital intensity of the industry, the population of integrated global oil companies is relatively small. By choosing the world’s largest privately owned integrated oil companies, our sample size is a fair representation of the population at a whole. Building on the framework of Pulic (1998), we used value added intellectual coefficient (VAICTM) as a proxy for intellectual capital. VAIC allows us to measure the contribution of every resource – human, structural, physical and financial – to create value for the company by using the financial statements of a company. We identified a statistically significant correlation (1% level) between VAIC and company performance. This relationship holds for economic, financial and market measures. This finding is in accordance with previous studies of the subject. In addition, we performed vigorous statistical analysis on the panel data, confirming the positive relationship of VAIC and our proxies for performance. Dividing VAIC into value added intellectual capital coefficient (VAIN) and value added capital employed (VACA) confirmed our prior beliefs that our industry is heavily dependent on tangible assets. However, VAIN was significant in explaining some of the variance for our economic and financial measures. Adding research and development as an independent variable to explain some of the intellectual capital increased our model’s ability to explain the variance. R&D is often used as a proxy for innovation capital. It became apparent that R&D expenditure has an initial negative effect on company performance, before positively affecting company performance in later years. This implies that investment in R&D has an impact on long-term sustainability.