Organizational Capital and Firm Value in Emerging Markets: A Dynamic Panel Analysis of N-11 Economies

Mahwish Ayub; Imran Riaz

doi:10.62270/jirms.v7i2.150

Authors

Mahwish Ayub PhD Scholar, Department of Management Sciences, Capital University of Science and Technology, Islamabad, Pakistan. https://orcid.org/0009-0000-8571-8393
Imran Riaz Associate Professor, Department of Management Sciences, Capital University of Science and Technology, Islamabad, Pakistan https://orcid.org/0000-0002-6867-0321

DOI:

https://doi.org/10.62270/jirms.v7i2.150

Keywords:

Organizational capital, Audit quality, Tobin’s Q, N-11 economies, System GMM, Dynamic panel

Abstract

Purpose—Whether firm-specific organizational capital (OC) earns the resource-based view (RBV) value premium or is underpriced due to weak disclosure and enforcement in emerging markets remains theoretically unresolved. This matters theoretically because the RBV and an information-asymmetry account generate directly opposing predictions about how OC should be priced under weak institutions, yet prior work has largely assumed the RBV premium generalizes without testing the rival account directly. This study examines the association of OC with firm value and profitability among listed manufacturing firms in the Next-11 (N-11) economies and tests whether audit quality (AQ) can substitute for weak institutions in helping markets recognize OC.

Methodology/Design/Approach—Using an unbalanced ten-year (2014–2024) firm-year panel from eleven N-11 economies, we proxy firm value by Tobin's Q and profitability by ROE. OC is measured via the Peters and Taylor (2017) perpetual-inventory method. We apply pooled OLS, firm fixed effects, and two-step system GMM to address endogeneity and dynamic bias.

Findings—OC shows a negative association with Tobin's Q in static models that turns insignificant under system GMM, while its link with ROE becomes weakly positive. Big-4 audit quality adds a 4.6-percentage-point premium to ROE but does not moderate the OC–performance relationship or enhance firm value. These results qualify the RBV: OC's value premium is masked by dynamic bias, and audit quality certifies accounting earnings but not unrecorded intangibles, refining institutional theory on governance boundaries. This contributes to the organizational-capital literature by showing that its value premium is not absent but obscured by dynamic-panel bias, and to the governance literature by identifying a boundary condition under which certification of recorded performance does not extend to unrecognized intangible resources.

Practical Implications—N-11 markets undervalue organizational capital. Audit quality improves earnings credibility but does not bridge the intangible valuation gap. Regulators should prioritize comprehensive intangible disclosure standards. Managers benefit more from voluntary structured OC disclosures than from audit assurance alone. Investors and auditors should not view Big-4 engagement as sufficient proof of intangible quality.

Originality/Value—The study’s main contribution is theoretical: it pits RBV against information-asymmetry predictions under weak institutions and identifies a boundary condition on audit quality’s role. It extends the literature with a multi-country emerging-market panel and dynamic GMM analysis.

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