Intellectual capital and corporate governance: an evaluation of Oman's financial sector companies

Abstract

PurposeThe purpose of this study is to empirically investigate the relationship between intellectual capital and corporate governance of Oman's financial sector companies. Intellectual capital has been found to successfully contribute to the economic wealth creation of firms in germane literature. Unfortunately, financial statements do not necessarily capture and reflect the contributions of intellectual capital, thereby leading to an information asymmetry between companies and users of financial statements. The research also investigates the relationship between corporate governance and intellectual capital efficiency across various financial subsectors.Design/methodology/approachData are collected from annual reports available on Muscat Securities Market for 31 listed financial sector companies for the period 2012 to 2016 and analyzed using a multiple regression model. Intellectual capital is measured using Pulic's efficiency measure of value-added intellectual coefficient (VAIC). Corporate governance individual components such as board characteristics, audit committee characteristics and ownership structure are presented as independent variables.FindingsThe findings suggest that board size and frequency of audit committee meetings have a significant association with the intellectual capital efficiency of Oman's financial sector. VAIC and human capital efficiency of banks are also significantly influenced by most of the corporate governance mechanisms; however, other subsectors do not report such findings. Corporate governance of banks in comparison to other subsectors effectively engages in utilizing the potential of intellectual capital efficiency. Agency theory and resource dependency theory find limited support as a result of this study. The GMM results are not robust to the alternative instruments.Research limitations/implicationsThe sample size is small as the study is limited to the listed financial sector of Oman. Future studies can be extended to include all of Oman's or GCC’s listed companies. Additionally, the intellectual capital is measured using the construct of VAIC which suffers some limitations and can be overcome using other tools such as content analysis.Practical implicationsThe findings of this study suggest that Oman's regulators can create an awareness strategy on highlighting the importance of intellectual capital for companies (board of directors and managers), investors, debtors and creditors. Further, Oman's Capital Market Authority and Muscat Securities Market need to strengthen the regulations related to intellectual capital.Originality/valueThis study extends intellectual capital and corporate governance literature by presenting the research outcome for Oman's financial sector. It is useful for Oman's financial sector companies to direct corporate governance measures for driving value creation of firms through the management of intellectual capital efficiency.

Corporate governance, ownership structure and firms’ financial performance: insights from Muscat securities market (MSM30)

“…Another study in the near future may focus on the analysis of the Omani financial sector only. This may be consistent with the literature in this area, as many works focused on the non-financial sector (Al-Saidi and Al-Shammari, 2015), whereas others focused on the financial sector (Dalwai and Mohammadi, 2020; Al-Matari, 2019). Some studies focused on the subsector of the financial sector, such as Islamic banks (Ajili and Bouri, 2018) or commercial banks (Arouri and Badrul, 2014).…”

“…Concerning Oman, Dalwai and Mohammadi (2020) examined the effect of intellectual capital on the corporate governance of Oman’s financial sector companies. Kareem and Mohammed (2019) investigated the effect of ownership concentrations on firm performance on 115 Omani companies listed in the MSM30.…”

Business strategy, intellectual capital, firm performance, and bankruptcy risk: evidence from Oman's non-financial sector companies

“…ROA is measured as the ratio of earnings before interest and tax divided by the total assets (Kao et al , 2019; Anwar and Hasnu, 2016; Navissi et al , 2016; Acquaah, 2013; Jiang and Zhang, 2018; Liu et al , 2018). ROE is measured as the ratio of net income divided by the book value of equity (Dalwai and Mohammadi, 2020; Magerakis and Tzelepis, 2020; Anwar and Hasnu, 2016; Ren et al , 2019).…”

“…For example, researchers proposed the Skandia Navigator model as a non-monetary measurement (Edvinsson and Malone, 1997) and the Value Added Intellectual Capital (VAIC) coefficient as a monetary measurement of IC (Pulic, 1998). VAIC model over the years has gained prominence from not only the researchers (Dalwai and Mohammadi, 2020; Buallay and Hamdan, 2019; Adesina, 2019; Cenciarelli et al , 2018; Dalwai et al , 2018) but also by corporates (Ho and Williams, 2003). There are three critical elements of VAIC that measures the efficiency of intellectual resources, human capital, structural capital, and physical capital.…”

“…Firm Size (FirmSize): Firm size is measured as the natural log of total assets (Dalwai and Mohammadi, 2020; Agustia et al , 2020; Magerakis and Tzelepis, 2020; Lopo and Ferreira, 2019; Navissi et al , 2016; Rahim, 2021). Firm size corresponds to different behavior in terms of financial conditions and regulatory requirements.…”