INDIA'S DRUGS AND PHARMACEUTICAL INDUSTRY FROM AN INTELLECTUAL CAPITAL LENS: A DYNAMIC PANEL PERFORMANCE ANALYSIS

Abstract

India's pharmaceutical and drug companies transform scientific knowledge, organizational processes, external networks and physical resources into commercially feasible products at the end of lengthy development cycles and during times of rigorous regulation, but the profitability of this knowledge base has yet to be explored in a dynamic panel setting. This study aims to know whether the Modified Value-Added Intellectual Coefficient (CVaic) and its factors are correlated to the profitability of Indian listed pharmaceutical companies after adjusting for persistence, leverage, tangibility and size. The study estimates pooled OLS, fixed-effects and two-step system GMM models using data from CMIE Prowess for 267 firms (2,062 firm-year observations, 2014-2024). The persistence estimates generated by the GMM procedure fall between the pooled OLS and fixed-effects persistence estimates, with all three estimates being positive and significant throughout. All the GMM estimators have a positive relationship between aggregate MVAIC and ROA. The component models show that there is heterogeneity, with positive relationships between structural and capital employed efficiency and profitability and a slightly positive relationship between human capital efficiency and profitability, while the relationship between relational capital efficiency and profitability is negative and significant. Leverage is negative and strong all the way through. The returns on intellectual capital are not necessarily related to total investment, but to producing value from the investment.