Board governance, intellectual capital and firm performance

Abstract

Purpose – The purpose of this paper is to examine the relationship between the combined (multiplicative) effect of board governance and intellectual capital (IC) on firm performance. Design/methodology/approach – This study is cross-sectional and follows a positivist view of testing pre-specified hypotheses. The study uses a respondent sample of 128 service firms operating in Kampala, directors or managers are the unit of enquiry. Structural equation modelling with analysis of moment structures is used for statistical modelling. Findings – Board governance and IC make significant contributions to firm performance. However, their interaction is a significant booster to services sector firms’ performance in Uganda. Research limitations/implications – Although an attempt is made at controlling for common method variance in particular by proactive instrument design and testing, and usage of the Harman single factor analytical technique, its influence may not have been dealt away completely owing to failure to obtain a plausible common marker variable. Well, it is meaningful to identify the significant positive multiplicative effects of board governance and IC so as uncover what is needed in service firms to improve their performance. Originality/value – Studies explaining firm performance via board governance only and which ignored the synergistic effects of board governance and IC have often missed the reality that the performance of the firm can significantly be improved by means of leveraging IC while simultaneously calling for effective board governance.

Management Background, Intellectual Capital and Financial Performance of Indonesian Bank

“…The results in this study are consistent with research conducted by Nkundabanyanga (2016), which states that intellectual capital positively, and significantly affect the company's financial performance. These results are also supported Khan et al, (2012) which states that there is significant influence of intellectual capital that is also calculated using the method VAIC on the financial performance of the Bank in Pakistan.…”

“…Ulum, Ghozali, and Purwanto, (2014), who analyzes the M-VAIC to measure the performance of the banking sector in Indonesia also found that Value Added is a function of capital employed and Intellectual Capital thus affecting the performance of the banking system. Nkundabanyanga (2016) found a positive relationship between the interactions of the elements of intellectual capital to financial performance observed in microfinance companies in the State Uganda. Based on some of the above description, it can be hypothesized as follows:…”

“…The principals of the contract expecting that the agent may act in accordance with the principal interest. This corresponds to Nkundabanyanga (2016), in his research about the agency theory; suggest that employees or managers in an organization can be selfish. The concept of agency theory is the basis for the performance of the board of directors in an organization.…”

Board Member Age Diversity and Financial Performance of Manufacturing Firms: A Developing Economy Perspective

“…Precisely, we principally report on the differences of the board member age composition and the effect that it has on financial performance. While good financial performance is a target of every rational business enterprise, many enterprises both in developing and developed economies have had challenges of poor financial performance (Nkundabanyanga, 2012;Kamukama, 2011;Baisi, 2008). Financial performance is seen in different contexts but generally, it can be measured in terms of liquidity, capital growth, asset base, return on assets and return on investment (Martin, 2013;Hofmann & Lampe, 2013).…”

“…Even then, most studies mainly tested listed firms in a developed economy context thus side lining the private manufacturing sector in a developing economy perspective. As a result, poor financial performance has largely remained unexplained in the context of the developing economies especially in the Ugandan manufacturing sector (Nkundabanyanga, 2012;Mutambi, 2011). Most firms in the manufacturing sector have registered a low return on investment, low return on assets and some of them fail to maintain adequate liquidity levels (Ishengoma & Kapel, 2008).…”