The mediating role of intellectual capital in corporate governance and the corporate performance relationship

Abstract

Purpose

This paper aims to investigate the impact of intellectual capital (IC) as a mediator variable on the association between corporate governance (CG) practices and firm performance. This study also examines bi-causality linkages between these variables.

Design/methodology/approach

The designated corporate governance index and the value-added intellectual coefficient method were used to assess the level of CG practices and the performance of IC. Tobin’s Q (TQ) and operating efficiency ratio were used to measure firm performance.

Findings

The aggregate CG score has a significant positive impact on the IC and the two measures of firm performance. However, the IC has only a partial mediation effect on the relationship between the aggregate corporate governance score and a firm’s operational efficiency ratio. The IC has partial and full mediation effects in the relationship between the sub-dimensions of corporate governance and the performance of Egyptian corporates. Moreover, a bi-causality relationship can be observed between CG and TQ.

Research limitations/implications

Generalizing the obtained results would require the sample size to be extended.

Practical implications

The findings should alert legislative institutions and practitioners of the need to comply with good CG practices and develop the efficiency of IC to elicit a firm’s superior performance.

Originality/value

This study is one of the first attempts to investigate the causality relationships and the mediation impact of IC on the relationship between CG practices and corporate performance in the Egyptian context.

Citation

Shahwan, T.M. and Fathalla, M.M. (2020), "The mediating role of intellectual capital in corporate governance and the corporate performance relationship", International Journal of Ethics and Systems, Vol. 36 No. 4, pp. 531-561. https://doi.org/10.1108/IJOES-03-2020-0022