Intellectual capital in Ugandan service firms as mediator of board governance and firm performance
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Date
2014
Journal Title
Journal ISSN
Volume Title
Publisher
African Journal of Economic and Management Studies
Abstract
The purpose of this paper is to examine the mediating effect of intellectual capital on the
relationship between board governance and perceived firm financial performance.
Design/methodology/approach – This study was cross-sectional. Analyses were by SPSS and
Analysis of Moment Structure on a sample of 128 firms.
Findings – The mediated model provides support for the hypothesis that intellectual capital mediates
the relationship between board governance and perceived firm performance. while the direct
relationship between board governance and firm financial performance without the mediation effect of
intellectual capital was found to be significant, this relationship becomes insignificant when mediation
of intellectual capital is allowed. Thus, the entire effect does not only go through the main hypothesised
predictor variable (board governance) but majorly also, through intellectual capital. Accordingly, the
connection between board governance and firm financial performance is very much weakened by the
presence of intellectual capital in the model – confirming that the presence of intellectual capital
significantly acts as a conduit in the association between board governance and firm financial
performance. Overall, 36 per cent of the variance in perceived firm performance is explained. the error
variance being 64 per cent of perceived firm performance itself.
Research limitations/implications – The authors surveyed directors or managers of firms and
although the influence of common methods variance was minimal, the non-existence of common
methods bias could not be guaranteed. Although the constructs have been defined as precisely as
possible by drawing upon relevant literature and theory, the measurements used may not perfectly
represent all the dimensions. For example board governance concept (used here as a behavioural
concept) is very much in its infancy just as intellectual capital is. Similarly the authors have employed
perceived firm financial performance as proxy for firm financial performance. The implication is that
the constructs used/developed can realistically only be proxies for an underlying latent phenomenon
that itself is not fully measureable.
Practical implications – In considering the behavioural constructs of the board, a new integrative
framework for board effectiveness is much needed as a starting point, followed by examining
intellectual capital in firms whose mediating effect should formally be accounted for in the board
governance – financial performance equation.
Originality/value – Results add to the conceptual improvement in board governance studies and lend
considerable support for the behavioural perspective in the study of boards and their firm performance
improvement potential. Using qualitative factors for intellectual capital to predict the perceived firm
financial performance, this study offers a unique dimension in understanding the causes of poor financial performance. It is always a sign of a maturing discipline (like corporate governance) to examine the role
of a third variable in the relationship so as to make meaningful conclusions.
Description
Keywords
Intellectual capital, Uganda, Mediation, Firm performance, Board governance
Citation
Stephen Korutaro Nkundabanyanga Joseph M. Ntayi Augustine Ahiauzu Samuel K. Sejjaaka , (2014),"Intellectual capital in Ugandan service firms as mediator of board governance and firm performance", African Journal of Economic and Management Studies, Vol. 5 Iss 3 pp. 300 - 340. http://dx.doi.org/10.1108/AJEMS-06-2012-0041