Journal of Intellectual Capital

Intellectual capital and traditional measures of corporate performance

Steven Firer S. Mitchell Williams
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Steven Firer S. Mitchell Williams, (2003),"Intellectual capital and traditional measures of corporate
performance", Journal of Intellectual Capital, Vol. 4 Iss 3 pp. 348 - 360
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JIC
4,3 Intellectual capital and
traditional measures of
348
corporate performance
Steven Firer
Faculty of Business and Economics, Monash University-South Africa,
Ruimsig, South Africa, and
S. Mitchell Williams
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School of Accountancy, Singapore Management University, Singapore

Keywords Intellectual capital, Productivity rate, South Africa
Abstract The principal purpose of this study is to investigate the association between the
efficiency of value added (VA) by the major components of a firm’s resource base (physical capital,
human capital and structural capital) and three traditional dimensions of corporate performance:
profitability, productivity, and market valuation. Data are drawn from a sample of 75 publicly
traded firms from South Africa from business sectors heavily reliant on intellectual capital.
Empirical analysis is conducted using correlation and linear multiple regression analysis. Findings
from the empirical analysis indicate that associations between the efficiency of VA by a firm’s
major resource bases and profitability, productivity and market valuation are generally limited and
mixed. Overall, the empirical findings suggest that physical capital remains the most significant
underlying resource of corporate performance in South Africa despite efforts to increase the
nation’s intellectual capital base.

Journal of Intellectual Capital
Vol. 4 No. 3, 2003
pp. 348-360
q MCB UP Limited
1469-1930
DOI 10.1108/14691930310487806
Introduction
A precise definition of corporate performance proves to be highly elusive
despite frequent use by various special interest stakeholder groups, scholars
and policy makers alike. The lack of consensus may arise because this concept
is associated with a variety of facets of a firm’s overall wellbeing, ranging from
financial profitability to output levels to market returns. For more than 200
years – since the publication of Adam Smith’s Wealth of Nations –
neoclassical economic principles were the general corner-stone of the dominant
theoretical paradigms in business disciplines such as management, finance and
accounting. Labor and capital were considered as the primary factors of
production determining corporate wellbeing. Recently, the development of
alternative economic theoretical frameworks and theories of the firm, a
growing recognition that traditional underlying factors of production have
changed, and an increasingly dynamic business environment have added to the
growing gulf in perceptions of corporate performance.
Some seminal work attempts to bridge the gap between traditional and
emerging views, though primarily at a theoretical level. In the new economic
era, where intellectual capital assets are increasingly recognized as the pivotal
driving force behind wealth creation, an important empirical question remains.
 Specifically, do traditional measures of corporate performance effectively IC and corporate
capture the same constructs of corporate performance as emerging intellectual performance
capital-based measures? This study is unique in empirically examining the
association between a measure of intellectual capital being increasingly applied
in business and academic applications – namely the Value Added Intellectual
Coefficiente (VAICe) developed by Ante Pulic and his colleagues at the
Austrian IC Research Centre (Pulic, 1998, 2000; Pulic and Borhemann, 1999) –
349
and three traditional measures of key notions of corporate performance (i.e.
profitability, productivity, and market valuation).
The study further contributes to the literature by focusing on South Africa
rather than a developed Western economy as employed in related work. Key
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reasons support this focus. For instance, archival evidence of the

understanding and development of intellectual capital (IC) concepts in
emerging economies is still very much in its infancy. With global prosperity
and stability increasingly dependent on emerging economies, a need to
establish evidence of intellectual capital development in different socio-political
and economic settings persists. Also, since emerging from apartheid South
Africa has been a nation in transition. Part of this transition involves efforts to
alter the nation’s economic base from a traditional reliance on natural resources
to one that encompasses intellectual capital. Evidence from the present study
may provide insights into the impact of intellectual capital in economies under
transition such as those in Eastern Europe. Finally, the concept of value added
(VA) which forms an important tenet of the measure of intellectual capital used
in the study (and also other emerging measures) has a strong historical past in
South Africa. This assisted in the capture of data used in measuring intellectual
capital performance.
The analysis presented is based on a sample of 75 South African publicly
listed firms from four IC intensive industry sectors:
(1) banking;
(2) electrical;
(3) information technology; and
(4) services.
Results are of interest to numerous parties. For example, policy makers capable
of influencing the direction and nature of the South African business
environment can utilize findings to determine possible required changes to
present policies to further promote the development of the nation’s intellectual
capital resource base. Also, findings aid unsophisticated investors to better
understand the changing face of South African business, plus the suitability of
the study’s underlying measure of intellectual capital performance for
evaluating the impact on firm value of change. Finally, findings provide
archival evidence of whether South African firms continue to rely on traditional
business practices and perceptions (that is, reliance on natural resources for
 JIC wealth creation), or are shifting toward a greater use of intellectual capital
4,3 factors.
The remainder of the present paper is organized as follows. The next section
develops the propositions underlying this study. Empirical results are
presented with conclusions and ideas for future research directions described in
the last section.
350
Developing intuitive research propositions
Donaldson and Preston (1995) argue that since Adam Smith the dominant view
of the firm is that it obtains its resources from investors, employees and
suppliers to produce goods and services for its customers. In principle, this
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traditional view contrives corporate performance to be the financial returns to a

firm’s owners from the consumption of tangible resources. Alternatively, more
recent theoretical views suggest investors, employees, suppliers, customers
and other relevant stakeholders (such as unions, government) both contribute
and receive benefits from a firm (Turnbull, 1997). Further, alternative
theoretical views, such as resource-based theory, conceive firms as collections
of physical and intangible assets and capabilities. These contrasting views also
provide different views of corporate performance. Advocates of resource-based
theory, for example, suggest that corporate performance is a function of the
effective and efficient use of the respective tangible and intangible assets of the
firm. Further, VA (also called wealth creation) is considered as the appropriate
means of conceptualizing corporate performance rather than the mere financial
returns to a firm’s owner. Sveiby (2000, 2001), for example, suggests that VA
epitomizes an effective measure of an economy’s production ability in the new
knowledge economy, whilst illustrating the shortfalls of traditional financial
measures.
The measure of income highlights the contrasting financial and VA
perceptions of corporate performance. The inquiry into whose income
accountants are striving to measure has been largely ignored (Suojanen, 1954;
Williams, 2001). A commonly accepted view is that income is the rewards due
to shareholders from their investment (Morley, 1979). A significant factor that
underlies the acceptance of this view is the dominance of “contractual theories
of the company” within the accounting discipline (Williams, 2001). The
emergence of alternative theories of the firm has also led to different
perceptions of the income accountants attempt to measure. The enterprise
theory of the firm, for example, is one alternative theoretical perspective
providing an alternative notion of income (Van Staden, 1998). Suojanen (1954),
for example, in using enterprise theory conceived the firm as a decision-making
center for the people (also termed participants or stakeholders), however,
fleeting or intimate their contacts with the organization. Participants include
shareholders, employees, customers, creditors and the government. Under
enterprise theory, income is the reward participants get for their participation
 in the firm (Morley, 1979). This alternative interpretation of income is termed IC and corporate
VA, specifically defined as the wealth created or distributed by the firm performance
through the utilization of its essential productive resources.
In our opinion and supported statements of other researchers (Bontis, 1998,
1999, 2001, 2002, 2003; Edvinsson, 1997; Pulic, 1998, 2000; Stewart, 1997;
Sveiby, 2000, 2001), traditional measures of corporate performance – based on
conventional accounting principles of determining income – may be unsuitable
351
in the new economic world where competitive advantage is driven by
intellectual capital. Use of traditional measures may lead investors and other
relevant stakeholders to make inappropriate decisions when allocating scarce
resources. These views can be expressed in the following questions: first, if
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knowledge is the key to future success, but is not adequately reflected in

traditional accounting financial measures, and second, financial measures are
the main drivers of top management’s decision making, what measuring
system would fulfil the requirements of the new economy and the needs of
modern companies? Given that traditional measures continue to dominate, it is
important to determine the extent to which such measures may intrinsically
capture the contribution from intellectual capital resources such as human
resources, customer reputation and research and development. This is of
particular importance in emerging economies that often have borrowed
long-held financial models from developed economies, but are striving to
strengthen their intellectual capital base to increase economic development.
The present study explores this issue, empirically analyzing the association
between a relevant measure of intellectual capital and the three commonly used
measures of different traditional sub-constructs of corporate performance:
productivity, profitability, and market evaluation[1].
Given the study’s exploratory nature, no formal hypotheses are formed.
Nonetheless, intuition implies some possible formative propositions. For
example, by convention most traditional measures of profitability focus on the
financial returns from tangible assets. Consequently, it is likely that such
measures are unlikely to capture the VA by intangible assets. Alternatively,
market evaluation considers the broader aspects of a firm including both its
intangible and tangible assets. As a result, there is likely to be a closer
association between market evaluation measures of corporate performance
than those for profitability. The following section describes the research
method employed in the present study to explore these issues.

Research method
Measure of dependent variables
To conduct the relevant analysis in the present study, three dependent
variables – related to the dimensions of profitability, productivity, and market
valuation (henceforth denoted ROA, ATO and MB), respectively – are used.
The literature documents various accounting- and market-based measures that
 JIC may be utilized as a proxy measure designed to capture the respective
4,3 properties of the three dependent variables. Presently, there is no specific
theoretical perspective or empirical evidence supporting any specific proxy
measure over another. It is decided, therefore, that for the purposes of the
present study the use of proxy measures used widely in the prior literature is
defined as follows:
352 .
ROA: ratio of the net income (less preference dividends) divided by book
value of total assets as reported in the 2001 annual report;
.
ATO: ratio of the total revenue to total book value of assets as reported in
the 2001 annual report;
.
MB: ratio of the total market capitalization (share price times number of
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outstanding common shares) to book value of net assets.

Measure of independent variables

The VAICe (Pulic, 1998) forms the underlying measurement basis for the three
major independent variables in the present study. VAICe is an analytical
procedure designed to enable management, shareholders and other relevant
stakeholders to effectively monitor and evaluate the efficiency of VA by a
firm’s total resources and each major resource component. Formally, VAICe is
a composite sum of three separate indicators:
(1) Capital employed efficiency (CEE) – indicator of VA efficiency of capital
employed.
(2) Human capital efficiency (HCE) – indicator of VA efficiency of human
capital.
(3) Structural capital efficiency (SCE) – indicator of VA efficiency of
structural capital.
The following equation formalizes the relationship algebraically:

VAICei ¼ CEEi þ HCEi þ SCEi

where
VAICei ¼ VA intellectual coefficient for firm i;
CEEi ¼ VAi/CEi; VA capital employed coefficient for firm i;
HCEi ¼ VAi/HCi; human capital coefficient for firm i; and
SCEi ¼ SCi/VAi; structural capital VA for firm i;
VAi ¼ Ii + DPi + Di + Ti + Mi + Ri[2]; VA for firm i computed as the sum
of interest expenses (Ii); depreciation expenses (DPi); dividends (Di);
corporate taxes (Ti); equity of minority shareholders in net income of
subsidiaries (Mi); profits retained for the year (Ri);
CEi ¼ book value of the net assets for firm i;
 HCi ¼ total investment salary and wages for firm i; IC and corporate
SCi ¼ VAi2HCi; structural capital for firm i. performance
Several key reasons support the use of VAICe. First, VAICe provides a
standardized and consistent basis of measure (Pulic and Bornemann, 1999),
thereby better enabling the effective conduct of an international comparative
analysis using a large sample size across various industrial sectors. Alternative 353
IC measures are limited in that they:
(1) utilize information associated with a select group of firms (for example,
stock data);
(2) involve unique financial and non-financial indicators that can be readily
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combined into a single comprehensive measure; and/or

(3) are customized to fit the profile of individual firms (Bontis et al., 1999;
Roos et al., 1997; Sullivan, 2000).
Consequently, the ability to apply alternative IC measures consistently across a
large and diversified sample for comparative analysis is diminished. Second, all
data used in the VAICe calculation are based on the audited information;
therefore, calculations can be considered objective and verifiable (Pulic, 1998,
2000). Other IC measures have been criticized due to the subjectivity associated
with their underlying indicators (Sveiby, 2000; Williams, 2001). Additionally,
concerns have been raised about difficulties in verifying information used in
calculating indicators comprising other IC measures. Third, VAICe is a
straightforward technique that enhances cognitive understanding and enables
ease of calculation by various internal and external stakeholders (Schneider,
1999). Ease of calculation enhanced the universal acceptance of many
traditional measures of corporate performance. Alternative IC measures are
limited as they will be calculated only by internal parties or rely upon
sophisticated models, analysis and principles. Finally, the VAICe
methodology is utilized in the present study as it is receiving increasing
research attention (see, for example, International Business Efficiency
Consulting, Inc., 2002; Williams, 2001) and applied use (see, for example,
Nova Kreditna banka Mariba (2000)).

Control variables
Correlation and linear multiple regression tests form the underlying statistical
analysis presented. For the linear multiple regression analysis four control
variables (size of the firm, leverage, financial performance[3], and industry
type) are generally included:
(1) Size of the firm (LCAP): natural log of total market capitalization.
(2) Leverage (Lev): total debt divided by book value of total assets as
reported in each firm’s 2001 annual report.
 JIC (3) Return on equity (ROE): ratio of the net income (less preference
4,3 dividends) divided by book value of total shareholders’ equity as
reported in the 2001 annual report.
(4) Industry type (BANK, ELEC, IT and SER): dummy variables
representing four major industries within the service sector.
354
Sample selection and descriptive statistics
Data are hand-collected from the 2001 fiscal year annual reports of 75 South
African publicly traded companies (listed on the Johannesburg Stock Exchange
(JSE)) from industry sectors extensively reliant on intellectual capital (namely,
bank, electronic, information and service sectors). The sample is limited to
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these industries, given the study’s exploratory nature and a desire to

investigate a homogeneous sample. Table I presents the mean, median and
standard deviation of the untransformed dependent variables, independent
variables and control factors for the final usable sample. Profitability (ROA)
and productivity (ATO) have means (medians) of 15.9 percent (9.9 percent) and
1.066 (0.840), respectively. The mean for market valuation (MB) indicates that
investors generally valued the sample firms in excess of the value of the book
value of net assets as reported in the financial statements. Comparison of CEE,
HCE and SCE values suggests that during 2001 the sample firms were
generally more effective in generating value from its human resource assets
than from physical and structural assets. This finding is consistent with prior
research of South African publicly traded firms based on the 1999 data (Ho and
Williams, 2002). The final usable sample comprises a range of both large and
small firms as indicated by total assets. Overall financial performance of the
sample firms is quite sound as indicated by the reasonably high ROA and ROE.
Leverage levels are similar to those in other nations. Finally, the majority of the
sample firms are affiliated with the services sector followed by the information
technology sector.

Results
Correlation analysis
Correlation analysis is the initial statistical technique employed to analyze the
relationship between the dependent and the independent variables[4]. Findings
from Pearson pairwise correlations indicate that CEE is significantly
negatively associated ( p , 0.05) with ATO. CEE is also significantly
positively correlated with MB ( p , 0.01). This independent variable, however,
is not significantly correlated with ROA. Results show a significant negative
association between HCE and ATO ( p , 0.01). HCE is not significantly
correlated with the remaining two dependent variables. Finally, SCE is not
significantly correlated with any of the dependent variables. Overall,
correlation results imply that sample firms with a higher level of efficiency
of VA from their physical capital were associated with lower levels of
 IC and corporate
Variable Standard
Variable description name Mean Median deviation performance
Profitability: ratio of net income to total
assets ROA 0.159 0.099 0.364
Productivity: ratio of total turnover to total
assets ATO 1.066 0.840 1.000 355
Market valuation: ratio of the firm’s market
capitalization to the firm’s book value of
net assets MB 1.505 1.267 1.042
Value added capital coefficient: ratio of the
total VA divided by the total amount of
capital employed CEE 0.468 0.377 0.349
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Value added human capital: ratio of the total

VA divided by the total salary and wages
spent by the firm on its employees HCE 2.078 1.074 2.327
Structural capital value added: ratio of a
firm’s structural capital divided by the
total VA SCE 20.313 0.069 1.238
Market capitalization: total number of
outstanding common shares multiplied by
share price at the end of 2000 CAP(Rand) 4.61E+09 7.43E+08 9.63E+09
Leverage: ratio of the firm’s total debt to total
assets Lev 0.650 0.489 0.535
Return on equity: ratio of net income to firm’s
total shareholders’ equity ROE 0.220 0.179 0.603
Bank sector: dummy variable with firms
from the banking sector coded one,
otherwise zero BANK 12.16 percent N/A N/A
Electronic sector: dummy variable with firms
from the electronic sector coded one,
otherwise zero ELEC 13.51 percent N/A N/A
Information technology sector: dummy
variable with firms from the information Table I.
technology sector coded one, otherwise zero IT 22.97 percent N/A N/A Descriptive
Service sector: dummy variable with firms statistics of
from the service sector coded one, untransformed
otherwise zero SER 51.35 percent N/A N/A variables

productivity, but higher levels of market valuation. Further, sample firms with
higher levels of efficiency of VA by their human capital were associated with
lower levels of productivity.

Linear multiple regression results

Table II presents results of three linear multiple regressions. The linear
regressions reported in Table II (Panel B, and C) are highly significant
( p , 0.001). In contrast, the linear regression reported in Table II (Panel A) is not
statistically significant, indicating that the independent variables and control
 JIC
Panel A: Panel B: Panel C:
4,3 profitability productivity market valuation

n 75 75 75
Adjusted R 2 0.048 0.309 0.435
F-statistic 1.459 4.630 7.250
356 Significance 0.190 0.000a 0.000a
Std. b t-stat. Std. b t-stat. Std. b t-stat.
Intercept N/A 2.983b N/A 2.173b N/A 22.965a
Independent variables
CEE 2 0.050 20.291 0.240 1.629 0.700 5.257a
HCE 2 0.004 20.023 2 0.298 2 2.124b 20.393 23.094a
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SCE 0.261 1.674g 2 0.109 2 0.801 0.091 0.741

Control factors
LCAP 2 0.373 2 2.383b 2 0.163 2 1.204 0.455 3.704
Lev 0.027 0.174 2 0.113 2 0.849 20.168 2 1.399
ROE N/A N/A 0.156 1.511 0.071 0.757
BANK 2 0.048 20.253 2 0.242 2 1.495 20.291 21.990g
ELEC 2 0.068 20.488 0.046 0.386 0.175 1.614
SER 2 0.181 21.142 2 0.119 2 0.878 0.072 0.590
Notes: The Table shows standardized coefficients and t-statistics for the respective independent
variables and control factors in the model. a ¼ significant at 1 percent confidence level;
Table II. b ¼ significant at 5 percent confidence level; g ¼ significant at 10 percent confidence level.
Linear multiple LCAP ¼ natural logarithm of the firm’s total market capitalization. See Table I for definitions of
regression results dependent variables, independent variables and control factors

factors are poor explanatory factors of variations in the dependent variable.

Across the three linear regressions reported in Table II, the adjusted coefficient of
determination varies from a high of 43.5 percent (Panel C) to a low of 4.8 percent
(Panel A). For the first linear multiple regression reported in Table II (Panel A)
only coefficients representing SCE ( p , 0.10) and LCAP ( p , 0.05) are
statistically significant. The directional signs on the coefficients for these two
statistically significant explanatory factors are positive and negative,
respectively. In the second linear multiple regression reported in Table II
(Panel B), the coefficient representing HCE is statistically negatively significant.
None of the other coefficients representing the independent variables and control
factors is statistically significant in this linear multiple regression. Finally, for
results of the last linear multiple regression reported in Table II (Panel C) the
coefficients representing CEE, HCE and BANK are statistically significant
( p , 0.05, p , 0.05 and p , 0.10, respectively). The directional sign on
coefficients for HCE and BANK is negative whilst for CEE it is positive.

Discussion and conclusions

Empirical findings fail to find any strong association between the efficiency of
VA by the major components of a firm’s resource base and profitability. At best
 there is only a moderately positive association between the efficiency of VA by IC and corporate
a firm’s structural capital and profitability. The overall lack of association may performance
potentially result from the concepts of VA and profitability capturing two
distinctive and completely unrelated dimensions of corporate performance. For
instance, profitability may be conceived strictly as financial and accounting
concern focusing on returns to the firm’s owners, solely within monetary terms.
Alternatively, VA defines the contribution to be the overall increase in potential
357
and wealth to the various stakeholders of a firm other than just the owners.
Another possible explanation for the lack of association between profitability
and VA is that there is a lack of variation in the dependent and independent
variables to conduct meaningful empirical analysis.
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With respect to productivity, only the efficiency of VA by a firm’s human

resources is to be significantly associated. Empirical findings suggest that this
association is negative. This result implies that publicly traded firms and the
business environment in South Africa may dictate a trade-off between tangible
assets and human capital. That is, firms in South Africa seeking to increase
productivity through the employment of tangible assets put less effort into
utilizing its human resource base. Alternatively, a firm focusing attention on
human resource assets appeared to give less emphasis to the effective use of
tangible assets.
Findings related to the association between market valuation and the
efficiency of VA by a firm’s major resource components provides some
interesting insights. First, findings imply that the market in South Africa
places a significant emphasis on returns from physical resource assets.
Consequently, firms that provide an indication that physical assets have been
utilized effectively in generating such returns are likely to be more highly
valued. Second, whilst the market appears to consider human resource assets,
findings suggest that the market may react negatively if a firm concentrates on
enhancing this resource base at the expense of its development of physical
capital resources. Third, empirical findings suggest that the South African
market appears to give significantly less attention to the structural capital
resources of a firm relative to physical capital and human capital resources.
Overall, the latter findings suggest that in general the South African market
continues to place greater faith and value in physical capital assets than
intellectual capital assets.
Finally, empirical findings indicate that firm size, leverage, financial
performance and industry type contribute very little to the explanatory power
of the linear multiple regression results. Indeed, these control factors were of
statistical significance in only two isolated cases. Consequently, the following
conclusions regarding the association between the control variables and
dependent variables can be summarized as follows:
.
firm size appears not to be associated with the dimensions of productivity
and market valuation;
 JIC .
leverage is not associated with profitability, productivity or market
4,3 valuation;
.
there is no association between financial performance and productivity
and market valuation; and
.
industry type is only moderately associated with market valuation and
358 neither profitability nor productivity.
Overall, the empirical findings, based on correlation and linear multiple
regression analysis, indicate that the association between the efficiency of VA
by a firm’s major resource components and the three traditional dimensions of
corporate performance is limited and mixed. In general, empirical findings
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suggest that despite the efforts to improve its intellectual capital base the
business environment and market in South Africa still appear to place greater
weight on corporate performance based on physical capital assets. A possible
policy implication of these findings from this study may be that policymakers
may have to adjust or intensify initiatives to encourage greater acceptance and
understanding of the concept of intellectual capital, and the development of
related assets. As South Africa continues efforts to join the international
community and increase its level of economic development beyond that of an
emerging economy, a continued aversion from and apathetic view toward
intellectual capital amongst South African firms and the business community
may have negative consequences.
Whilst providing various insights that should be of interest to scholars,
shareholders, institutional investigations, policymakers and other relevant
stakeholders, the findings from the present study indicate avenues for further
investigation. For example, findings from the present study are cross-sectional.
Future research can be undertaken to investigate the associations studied in the
present paper across time. Also, analysis in the present study draws on data
from a single nation and from firms within business sectors reliant on
intellectual capital. Additional research should be conducted using data from
alternative domestic settings and/or firms from non-intellectual capital
business sectors. Despite possible limitations of using single-period data, a
relatively focused sample and a single domestic location, it is felt that the
results from the present study provide valuable insights into the association
between intellectual capital and traditional perceptions of corporate
performance. Further, this study helps to expand the current research
agenda within the intellectual capital discipline toward alternative areas of
interest.

Notes
1. Productivity (or efficiency) described which inputs are converted to outputs. Conversely,
profitability described corporate performance as the degree to which a firm’s revenues
exceed costs. Finally, market evaluation concentrates on the degree to which a firm’s market
value exceeds its book value. This last dimension is related to a firm’s performance because
 if the firm was not operating well (not performing), then its market value would probably be IC and corporate
limited to the net book value of its assets.
2. Prior research has defined VA by the following algebraic equation:
performance

Rev 2 B þ Inv ¼ W þ I þ DP þ D þ T þ M þ R ð1aÞ

or 359
S 2 B þ Inv 2 DP ¼ W þ I þ DP þ D þ T þ M þ R: ð1bÞ

Equation (1a) is commonly referred to as the gross VA and Equation (1b) is termed the net
VA. Theoretical arguments have been forwarded supporting both approaches. Empirical
research indicates that both methods have been used in practice. Pulic (1998) argues that,
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because of the central active role human resources plays in the value creation process, labor
costs (wages expense) should not be included in the VA computations. This view is
consistent with the opinions of other IC experts (Edvinsson, 1997; Sveiby, 2000).
3. In the linear multiple regression with profitability as the dependent variable the control
factor of financial performance (denoted as ROE) is not included, as the return on equity may
also be used as a proxy for the dependent variable.
4. Spearman correlations were also performed. These alternative correlations tests yield the
same results. Owing to space limitations correlation values are not formally presented in the
present paper. Results of correlation analysis can be obtained from the authors upon request.

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