The relationship between corporate governance and stock returns: The moderating role of intellectual capital

This study investigates the moderating role of intellectual capital (IC) in the relationship between corporate governance (CG) and stock returns (SR) within the United Kingdom's financial sector. Using a panel dataset of 65 financial firms listed on the FTSE 100 Index over the period 2019–2023, the analysis employs a moderated regression framework under a random-effects specification, as validated by the Hausman test. CG quality is proxied through board independence (INDCOM) and institutional ownership (INSTOWN), while IC is measured using the Modified Value Added Intellectual Coefficient (MVAIC) model. The empirical findings demonstrate that effective governance mechanisms exert a positive and statistically significant impact on SRs. Both independent directors and institutional investors contribute to improved market performance through enhanced monitoring, transparency, and accountability. More importantly, IC exhibits a significant moderating effect, strengthening the relationship between governance and market outcomes. This indicates that UK firms with higher levels of human, structural, and relational capital are better equipped to translate governance efficiency into superior financial returns. The results contribute to the Resource-Based View (RBV) by confirming that intangible assets complement governance structures in creating sustained competitive advantage. Furthermore, the findings support agency theory by demonstrating how knowledge transparency reduces information asymmetry between managers and shareholders. From a practical perspective, the study highlights the importance of integrating ICmanagement within CG frameworks to enhance firm value, investor trust, and long-term sustainability.