ISSN: 1019-7044
Volume XLVIII, Nos. 3 & 4, September & December 2023
Published: July 2024
Pages: 129-153
Monika Barak, Rakesh Kumar Sharma, Ph.D.
The current article assesses the influence of intellectual capital (I.C) on the financial performance (F.P) of Indian public sector banks (IPSBs). The information was collected from annual reports and CMIE of 12 PSBs for the period 2010 to 2022. For assessing the F.P of IPSBs, a simple panel least square analysis is conducted. Return on assets (ROA), Return on sale (ROS), and return on equity (ROE) are applied as dependent variables. The intellectual capital (I.C) components including structural capital (S.C), relational capital (R.C), human capital (H.C), and capital employed (C.E), have been used as independent variables along with two controlling factors financial leverage and size. The empirical outcomes of the research indicate that C.E, and S.C have a positive significant association with ROA, ROE, and ROS whereas R.C and H.C have a positive insignificant association with ROA, ROE, and ROS. The MVAIC positively insignificant correlates with ROA, ROE, and ROS. The research indicates that decision-makers should manage I.C and its constituents with care because they are a significant source of organizational value. It is essential to keep in mind that excessive investment in I.C results in decreased firms’ efficiency and wasteful use of resources, as well as decreased profitability. JEL Classification: C1, J24
JEL Classification:
Keywords: Indian Public Sector Banks , ROA , ROS , ROE , Intellectual Capital. , Modified Value-added Intellectual Capital Coefficient
References:
Anifowose, M., Abdul Rashid, H. M., Annuar, H. A., & Ibrahim, H. (2018). Intellectual capital efficiency and corporate book value: Evidence from Nigerian economy. Journal of Intellectual Capital, 19(3), 644–668. https://doi.org/10.1108/JIC-09-2016-0091 Asare, N., Alhassan, A. L., Asamoah, M. E., & Ntow-Gyamfi, M. (2017). Intellectual capital and profitability in an emerging insurance market. Journal of Economic and Administrative Sciences. Aybars, A., & Oner, M. (2022). The impact of intellectual capital on firm performance and value: An application of MVAIC on firms listed in Borsa Istanbul. Gazi Journal of Economics and Business, 8(1). https://doi.org/10.30855/gjeb.2022.8.1.004 Barathi Kamath, G. (2007). The intellectual capital performance of the Indian banking sector. Journal of Intellectual Capital, 8(1), 96–123. https://doi.org/10.1108/14691930710715088 Bayraktaroglu, A. E., Calisir, F., & Baskak, M. (2019). Intellectual capital and firm performance: An extended VAIC model. Journal of Intellectual Capital, 20(3), 406–425. https://doi.org/10.1108/JIC-12-2017-0184 Bontis, N. (1998). Intellectual capital: An exploratory study that develops measures and models. Management Decision, 36(2), 63–76. Buallay, A., Hamdan, A. M., Reyad, S., Badawi, S., & Madbouly, A. (2020). The efficiency of GCC banks: The role of intellectual capital. European Business Review, 32(3), 383–404. https://doi.org/10.1108/EBR-04-2019-0053 Cabrita, M. D. R., & Bontis, N. (2008). Intellectual capital and business performance in the Portuguese banking industry. International Journal of Technology Management, 43(1/2/3), 212. https://doi.org/10.1504/ IJTM. 2008.019416 Celenza, D., & Rossi, F. (2014). Intellectual capital and performance of listed companies: Empirical evidence from Italy. Measuring Business Excellence, 18(1), 22–35. https://doi.org/10.1108/MBE-10-2013-0054 Chen Goh, P. (2005). Intellectual capital performance of commercial banks in Malaysia. Journal of Intellectual Capital, 6(3), 385–396. https://doi.org/10.1108/14691930510611120 Choi, I. (2001). Unit root tests for panel data. Journal of International Money and Finance, 20(2), 249–272. https://doi.org/10.1016/S0261-5606(00)00048-6 Chowdhury, L. A. M., Rana, T., Akter, M., & Hoque, M. (2018). Impact of intellectual capital on financial performance: Evidence from the Bangladeshi textile sector. Journal of Accounting & Organizational Change. Chu, S. K. W., Chan, K. H., Yu, K. Y., Ng, H. T., & Wong, W. K. (2011). An Empirical Study of the Impact of Intellectual Capital on Business Performance. Journal of Information & Knowledge Management, 10(01), 11–21. https://doi.org/10.1142/S0219649211002791 Deegan, C. (2006). Legitimacy theory. In Methodological issues in accounting research: Theories, methods and issues (pp. 161–181). Spiramus Press Ltd. Edvinsson, L. (1997). Developing intellectual capital at Skandia. Long Range Planning, 30(3), 366–373. Ferenhof, H. A., Durst, S., Zaniboni Bialecki, M., & Selig, P. M. (2015). Intellectual capital dimensions: State of the art in 2014. Journal of Intellectual Capital, 16(1), 58–100. https://doi.org/10.1108/JIC-02-2014-0021 Firer, S., & Mitchell Williams, S. (2003). Intellectual capital and traditional measures of corporate performance. Journal of Intellectual Capital, 4(3), 348–360. https://doi.org/10.1108/14691930310487806 Freeman, R. E., Harrison, J. S., Wicks, A. C., Parmar, B. L., & De Colle, S. (2010). Stakeholder theory: The state of the art. Ghozali, I., & Chariri, A. (2007). Accounting Theory. Semarang: Badan Penerbit Universitas Diponegoro. Bahasa. Ginesti, G., Caldarelli, A., & Zampella, A. (2018). Exploring the impact of intellectual capital on company reputation and performance. Journal of Intellectual Capital, 19(5), 915–934. Goh, S. C. (2003). Improving organizational learning capability: Lessons from two case studies. The Learning Organization. Grant, R. M. (1996). Toward a knowledge-based theory of the firm. Strategic Management Journal, 17(S2), 109–122. Haris, M., Yao, H., Tariq, G., Malik, A., & Javaid, H. (2019). Intellectual Capital Performance and Profitability of Banks: Evidence from Pakistan. Journal of Risk and Financial Management, 12(2), 56. https://doi.org/ 10.3390/ jrfm 12020056 Henry, L. (2013). Intellectual capital in a recession: Evidence from UK SMEs. Journal of Intellectual Capital, 14(1), 84–101. https://doi.org/10.1108/ 1469193 1311289039 Inkinen, H. (2015). Review of empirical research on intellectual capital and firm performance. Journal of Intellectual Capital, 16(3), 518–565. https://doi.org/10.1108/JIC-01-2015-0002 Joshi, M., Cahill, D., & Sidhu, J. (2010). Intellectual capital performance in the banking sector: An assessment of Australian owned banks. Journal of Human Resource Costing & Accounting, 14(2), 151–170. https://doi.org/ 10.1108/14013381011062649 Kapoor, S., & Saihjpal, A. (2022). Intellectual capital and performance of Indian companies: An empirical investigation. International Journal of Learning and Intellectual Capital, 19(6), 608. https://doi.org/10.1504/ IJLIC. 2022.126306 Kim, S. Y., & Tran, D. B. (2023). Intellectual capital and performance: Evidence from SMEs in Vietnam. Asia-Pacific Journal of Business Administration. https://doi.org/10.1108/APJBA-08-2022-0343 Kramar, R., & Steane, P. (2012). Emerging HRM skills in Australia. Asia-Pacific Journal of Business Administration. Kujansivu, P., & Lönnqvist, A. (2007). Investigating the value and efficiency of intellectual capital. Journal of Intellectual Capital, 8(2), 272–287. https://doi.org/10.1108/14691930710742844 Le, T. D., Ho, T. N., Nguyen, D. T., & Ngo, T. (2022). Intellectual capital – bank efficiency nexus: Evidence from an emerging market. Cogent Economics & Finance, 10(1), 2127485. https://doi.org/10.1080/2332 2039.2022. 2127485 Levin, A., Lin, C.-F., & Chu, C.-S. J. (2002). Unit root tests in panel data: Asymptotic and ÿnite-sample properties. Journal of Econometrics. Maddala, G. S., & Wu, S. (1999). A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test. Oxford Bulletin of Economics and Statistics, 61(S1), 631–652. https://doi.org/10.1111/1468-0084.0 610s 1631 Maditinos, D., Chatzoudes, D., Tsairidis, C., & Theriou, G. (2011). The impact of intellectual capital on firms’ market value and financial performance. Journal of Intellectual Capital, 12(1), 132–151. Meles, A., Porzio, C., Sampagnaro, G., & Verdoliva, V. (2016). The impact of the intellectual capital efficiency on commercial banks performance: Evidence from the US. Journal of Multinational Financial Management, 36, 64–74. Marr, B., & Chatzkel, J. (2004). Intellectual capital at the crossroads: Managing, measuring, and reporting of IC. Journal of Intellectual Capital. Mehralian, G., Rajabzadeh, A., Sadeh, M. R., & Rasekh, H. R. (2012). Intellectual capital and corporate performance in Iranian pharmaceutical industry. Journal of Intellectual Capital, 13(1), 138–158. Mohapatra, S., Jena, S. K., Mitra, A., & Tiwari, A. K. (2019). Intellectual capital and firm performance: Evidence from Indian banking sector. Applied Economics, 51(57), 6054–6067. https://doi.org/10.1080/00036 846. 2019. 1645283 Mondal, A., & Ghosh, S. K. (2012). Intellectual capital and financial performance of Indian banks. Journal of Intellectual Capital, 13(4), 515–530. https://doi.org/10.1108/14691931211276115 Nassar, S. (2020). Impact of Intellectual Capital on Corporate Performance. European Journal of Business and Management Research, 5(6). https://doi.org/10.24018/ejbmr.2020.5.6.647 N. Isanzu, J. (2015). Impact of Intellectual Capital on Financial Performance of Banks in Tanzania. Journal of International Business Research and Marketing, 1(1), 17–24. https://doi.org/10.18775/jibrm.1849-8558. 2015. 11.3002 Nawaz, T. (2019). Intellectual capital profiles and financial performance of Islamic banks in the UK. International Journal of Learning and Intellectual Capital, 16(1), 87–97. Nawaz, T., & Haniffa, R. (2017). Determinants of financial performance of Islamic banks: An intellectual capital perspective. Journal of Islamic Accounting and Business Research, 8(2), 130–142. https://doi.org/ 10.1108/JIABR-06-2016-0071 Nazari, J. A., & Herremans, I. M. (2007). Extended VAIC model: Measuring intellectual capital components. Journal of Intellectual Capital, 8(4), 595–609. https://doi.org/10.1108/14691930710830774 Nimtrakoon, S. (2015). The relationship between intellectual capital, firms’ market value and financial performance: Empirical evidence from the ASEAN. Journal of Intellectual Capital, 16(3), 587–618. https://doi.org/ 10.1108/JIC-09-2014-0104 North, K., & Kumta, G. (2018). Knowledge management: Value creation through organizational learning. Springer. Oppong, G. K., Pattanayak, J. K., & Irfan, Mohd. (2019). Impact of intellectual capital on productivity of insurance companies in Ghana: A panel data analysis with System GMM estimation. Journal of Intellectual Capital, 20(6), 763–783. https://doi.org/10.1108/JIC-12-2018-0220 Ousama, A. A., Hammami, H., & Abdulkarim, M. (2020). The association between intellectual capital and financial performance in the Islamic banking industry: An analysis of the GCC banks. International Journal of Islamic and Middle Eastern Finance and Management, 13(1), 75–93. Ozkan, N., Cakan, S., & Kayacan, M. (2017). Intellectual capital and financial performance: A study of the Turkish Banking Sector. Borsa Istanbul Review, 17(3), 190–198. https://doi.org/10.1016/j.bir.2016.03.001 Poh, L. T., Kilicman, A., & Ibrahim, S. N. I. (2018). On intellectual capital and financial performances of banks in Malaysia. Cogent Economics & Finance, 6(1), 1453574. https://doi.org/10.1080/23322039.2018.1453574 Pulic, A. (1998). Measuring the performance of intellectual potential in knowledge economy. 2nd McMaster Word Congress on Measuring and Managing Intellectual Capital by the Austrian Team for Intellectual Potential, 1–20. Pulic, A. (2000). VAICTM–an accounting tool for IC management. International Journal of Technology Management, 20(5–8), 702–714. Pulic, A. (2004). Intellectual capital–does it create or destroy value? Measuring Business Excellence. Roos, J., Edvinsson, L., & Dragonetti, N. C. (1997). Intellectual capital: Navigating the new business landscape. Springer. Ruckdeschel, C. (1998). Intellectual capital: The new wealth of organizations by Thomas Stewart. Performance Improvement, 37, 56–59. Salehi, M., Ali Mohammed Al-Msafir, H., Homayoun, S., & Zimon, G. (2023). The effect of social and intellectual capital on fraud and money laundering in Iraq. Journal of Money Laundering Control, 26(2), 227–252. https://doi.org/10.1108/JMLC-12-2021-0142 Sardo, F., & Serrasqueiro, Z. (2017). A European empirical study of the relationship between firms’ intellectual capital, financial performance and market value. Journal of Intellectual Capital, 18(4), 771–788. https://doi.org/10.1108/JIC-10-2016-0105 Smriti, N., & Das, N. (2018). The impact of intellectual capital on firm performance: A study of Indian firms listed in COSPI. Journal of Intellectual Capital, 19(5), 935–964. https://doi.org/10.1108/JIC-11-2017-0156 Stewart, T. A. (1997). Intellectual capital: The new wealth of organizations, Bantam Doubleday Dell Publishing Group. Inc., New York, NY. Subramaniam, M., & Youndt, M. A. (2005). The influence of intellectual capital on the types of innovative capabilities. Academy of Management Journal, 48(3), 450–463. Sullivan, P. H. (2000). Value driven intellectual capital: How to convert intangible corporate assets into market value. John Wiley & Sons, Inc. Sveiby, K. E. (1997). The new organizational wealth: Managing & measuring knowledge-based assets. Berrett-Koehler Publishers. Taha, N., Alshurafat, H., & Al Shbail, M. O. (2022). The impact of different intellectual capital dimensions on banks operational and financial performance. International Conference on Business and Technology, 946–956. Tiwari, R., & Vidyarthi, H. (2018). Intellectual capital and corporate performance: A case of Indian banks. Journal of Accounting in Emerging Economies, 8(1), 84–105. https://doi.org/10.1108/JAEE-07-2016-0067 Tran, D. B., & Vo, D. H. (2018). Should bankers be concerned with Intellectual capital? A study of the Thai banking sector. Journal of Intellectual Capital, 19(5), 897–914. Tran, N. P., & Vo, D. H. (2020). Human capital efficiency and firm performance across sectors in an emerging market. Cogent Business & Management, 7(1), 1738832. https://doi.org/10.1080/23311975.2020.1738832 Tripathy, T., Gil-Alana, L. A., & Sahoo, D. (2015). The effect of intellectual capital on firms’ financial performance: An empirical investigation in India. International Journal of Learning and Intellectual Capital, 12(4), 342–371. Vergauwen, P., Bollen, L., & Oirbans, E. (2007). Intellectual capital disclosure and intangible value drivers: An empirical study. Management Decision, 45(7), 1163–1180. https://doi.org/10.1108/00251740710773961 Wang, Z., Wang, N., & Liang, H. (2014). Knowledge sharing, intellectual capital and firm performance. Management Decision. Weqar, F., Khan, A. M., & Haque, S. M. I. (2020). Exploring the effect of intellectual capital on financial performance: A study of Indian banks. Measuring Business Excellence, 24(4), 511–529. https://doi.org/ 10.1108/ MBE-12-2019-0118 Xu, J., & Li, J. (2019). The impact of intellectual capital on SMEs’ performance in China: Empirical evidence from non-high-tech vs. high-tech SMEs. Journal of Intellectual Capital, 20(4), 488–509. https://doi.org/10.1108/JIC-04-2018-0074 Xu, J., Liu, F., & Korea University Business School. (2020). The Impact of Intellectual Capital on Firm Performance: A Modified and Extended VAIC Model. Journal of Competitiveness, 12(1), 161–176. https://doi.org/10 .7441/joc.2010.01.10 Xu, J., & Wang, B. (2019). Intellectual Capital Performance of the Textile Industry in Emerging Markets: A Comparison with China and South Korea. Sustainability, 11(8), 2354. https://doi.org/10.3390/su11082354 Yeh-Yun Lin, C., & Edvinsson, L. (2008). National intellectual capital: Comparison of the Nordic countries. Journal of Intellectual Capital, 9(4), 525–545. Youndt, M. A., & Snell, S. A. (2004). Human resource configurations, intellectual capital, and organizational performance. Journal of Managerial Issues, 337–360.