From Knowledge to Growth: Investigating Intellectual Capital’s Impact on Financial Sustainability in Emerging Economies

Abstract

Pakistani firms face significant issues (e.g., weak innovation capacity, limited global competitiveness, inefficient resource allocation, and over-reliance on traditional assets). These issues restrict their ability to achieve sustainable financial growth (SFG). To overcome these issues, our study investigates the impact of Intellectual Capital (IC) on SFG, based on the Knowledge-Based View (KBV) theory. The study employs a quantitative approach using secondary data from 125 non-financial firms listed on the Pakistan Stock Exchange (PSX) for the period 2016–2024. The Modified Value Added Intellectual Coefficient (MVAIC) is used to measure IC, which includes Human Capital Efficiency (HCE), Structural Capital Efficiency (SCE), Relational Capital Efficiency (RCE), and Capital Employed Efficiency (CEE). SFG is assessed through a composite index of four financial ratios, while firm size, age, and long-term debt to total assets are used as control variables. Panel data regression models, including random and fixed effects, were applied to test the hypotheses. Findings reveal that all components of IC positively and significantly influence SFG, with RCE having the strongest effect. KBV theory supports these findings and claims that intangible assets are vital for sustained competitive and financial performance. This study contributes to the literature by shifting the focus from short-term firm performance to sustainable financial outcomes and offers practical implications for managers, investors, and policymakers in knowledge-based resource planning.