Why Pursuit of Enhanced Non-Financial Performance Should Refocus on Management of Intellectual Capital: The Case of Family Firms

Abstract

A number of studies reveal that financial performance of organizations is, to a significant extent, dependent on management of intellectual capital in firms. Equally, more and more studies trace significant upturns in financial performance to non-financial performance, yet investigations on the association between management of intellectual capital and nonfinancial performance remains largely ignored. The interdependent association between non-financial and financial performance, therefore, calls for a study to unravel the relationship between management of intellectual capital and non-financial performance. The purpose of the study is to establish the effect of management of intellectual capital on non-financial performance by focusing on family owned Micro, Small and Medium Establishments in Migori County, Kenya. Survey research design is used with a target population of 167 registered family owned MSMEs. A sample of 118 respondents is used. Simple and stratified random sampling techniques are adopted. Primary data are collected through self-administered questionnaires. Both descriptive and inferential statistics are employed in data analysis. Findings reveal that management of intellectual capital (β = 0.757, p < 0.05) has a positive and statistically significant effect on non-financial performance. The study recommends that organizations create an environment where management of intellectual capital is encouraged to facilitate improved non-financial performance. The findings are in support of the of the resource based view theory that non-financial performance in organizations is largely attributable to the valuable, rare, inimitable, and non-substitutable knowledge held by the firm. The study also recommends that similar studies be undertaken in different settings and sectors, different from family owned MSMEs – as is the case with this study.