Does Intellectual Capital mediate the relationship of Artificial Intelligence Investment, and Firm Value in Pakistani Non-Financial Firms?

Abstract

Purpose- Pakistan's economy is experiencing challenges such as reduced business productivity, low resource efficiency, low digitization, and diminishing firm value (FV). The role of artificial intelligence (AI) and business resources is critical to solve these challenges. Therefore, the objective of this research questions whether Intellectual Capital (IC) mediates the relationship between AI investment and FV in Pakistani non-financial firms. This study uses intellectual capital theory (ICT) and resource-based view (RBV) theories.

Study Design/Methodology/Approach - Secondary data was collected from the annual reports of 80 non-financial enterprises listed on the Pakistan Stock Exchange (PSX) from 2015 to 2023. The Generalized Method of Moments (GMM) model, is used to investigate the relationship between these variables.

Findings- The findings reveal that AI investment positively affects FV. IC which consists of these components human capital (HC), structural capital (SC), and relational capital (RC) mediates the relationship between AI and FV by transforming AI-driven investments into increased organizational knowledge, innovation, and efficiency, which in turn improves FV and market perception. RBV and ICT support these findings.

Research Implications- SMEs in emerging markets like Pakistan can improve their FV by investing in AI-related projects and training their employees to operate these projects, upgrade their internal structure/software, and build relations with society. Furthermore, this study has both practical and societal implications for all stakeholders in businesses. Firm managers and policymakers can understand the importance of AI and IC in enhancing FV.

Originality/Novelty - This study differs from earlier ones in that it uses the modified value-added intellectual coefficient (MVAIC) model to measure IC and investigate its impact on FV. Furthermore, to the best of the researcher's knowledge, this is the first study to look at IC as a mediator of AI and FV.