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Top1. Introduction
The knowledge-driven economy disapproves of the historical accounting reporting system as the books don't provide valuable data to stakeholders (Boesso and Kumar, 2007), which is why the demand for a distinctive description of data has been raised (Abeysekera and Guthrie, 2005). The historical accounting system does not clearly mull the information of Intellectual capital (IC), though it serves an important ratio in the overall worth of the firm (Guthrie et al., 2006). Subsequently, organizations have started to fulfil the requirement of the stakeholders and initiated the disclosure of non-monetary information including data on IC (Abeysekera and Guthrie, 2005).
The term “Intellectual Capital” has gained recognition in enhancing the firms' value and gain a competitive advantage in the developed world. But, not many studies have used developing countries for assessing the significance of IC. However, these economies are rich with an abundance of human capital and thus, IC, which is majorly constituted by human resources, plays a prominent role in their growth. Subsequently, it is important to comprehend that IC is effectively and efficiently used by the firms to create value and gain an upper hand in the market. Intellectual capital precisely includes Human Capital and Organizational Capital (Roos et al., 1997; Edvinsson and Malone, 1997). Brooking (1996) classified IC into four main components: “infrastructure assets, human-centered assets, intellectual property assets, and market assets”. IC also breakdowns as “internal capital, external capital and human capital” (Sveiby, 1997; Pablos, 2002; Bozzolan et al., 2003).
The advancement of knowledge and learning-based economy has expanded the significance of IC (Petty and Guthrie, 2000). The World Bank (1998) has recognized the significance of knowledge and defined it as “Knowledge is like a light. Weightless and intangible, it can easily travel the world, enlightening the lives of people everywhere”. The value of the IC has expanded because of the growing knowledge economy (Cabrita and Vaz, 2005). Tangible and intangible assets are viewed as probable resources for attaining a favourable position in the market (Ruta, 2009). Also, the theory based on IC is attracting importance in the accounting literature as it has been noticed that IC and firms' performance are related to each other. Hence, the effect of IC is presumed to be studied (Pew Tan et al., 2008).
In the last few decades, academicians have taken interest in originating distinctive phrases and analyzing various methods for computing IC. Classical methods constitute mainly of financial measures for performance evaluation and very few non-financial measures. However, in these classical methods, attention was paid to tangible characteristics of financial measures only and IC was not accounted for (Kujansivu, 2005). The failure of classical methods to integrate the measures of IC leads to the motivation for the present study in IC. The IC has an impact on the performance as the effect for the same has been measured by Kaplan and Nortan (1996) through Balanced scorecard by initiating a link between cause and effect. After which various methods and theories for estimating IC were developed. Though the methods were mainly non-financial and hence, comparison between companies or industries was difficult. However, two of the methods i.e. Intangible value method and the Value Added Intellectual Coefficient (VAIC™) method provide a solid base for comparing IC between companies or industries and also, these methods are easy to compute and understand. Ante Pulic (1998) proposed VAIC™ and expressed Capital Employed (CE) and Intellectual Capital as two key assets in making an organization's value added. IC subsist of Human Capital (HC) and Structural Capital (SC).