Intellectual capital disclosure and financial performance nexus in Islamic and conventional banks in the GCC countries

Abstract

Purpose This paper aims to comparatively examine the impact of the intellectual capital performance on the financial performance of Islamic and conventional banks in the Gulf Cooperation Council (GCC) countries by classifying intellectual capital as human capital, knowledge creation and innovation processes. Design/methodology/approach Along with the theoretical discussion in essentialising the rationale for intellectual capital formation through Islamic norms, the empirical analysis is formulated through the data generated by disclosure analysis using a panel of five GCC countries examining 408 annual reports from 19 Islamic and 23 conventional banks covering 2010–2019 period. In the analysis of the generated data, both fixed and random effects regression models are used. Findings The findings of this paper suggest that Islamic banks perform better than conventional banks in creating intellectual capital through knowledge creation, human capital and intellectual contribution. While the intellectual capital disclosure index and its pillars are significant for Islamic banks, these variables are not significant for the conventional banks in the GCC countries. Research limitations/implications Considering that disclosed information may not reflect actual experience and performance, factual data could also be used to overcome potential shortcomings of disclosure generated data. Practical implications This paper demonstrates that Islamic banks in the GCC have been successful in their intellectual capital performance, whereby they seem to be performing in line with the Islamic ontology. In addition, the disclosure items used in this paper may guide the Islamic and conventional banks in the process of preparing their annual reports. Importantly, they may use these items as benchmarks in further developing their intellectual capital performance for better financial performance. Originality/value This paper essentialises knowledge development and innovation for Islamic banks through the Islamic cognitive system rather than as a requirement of the market mechanism. Secondly, a comparative analysis between Islamic and conventional banks is presented by acknowledging the peculiarities of Islamic banks in the methodology and disclosure index.

Cross-Region Comparison Intellectual Capital and Its Impact on Islamic Banks Performance

“…Nonaka et al (2017) argue that companies need to create new knowledge to ensure their future existence, so they must have good strategic and resource management. Several previous studies analyse the IC components independently of their dependent variables, such as research (Akkas and Asutay 2022;Chatterjee et al 2022;Dalwai and Mohammadi 2020;Dalwai and Salehi 2021;Kweh et al 2021;Vo and Tran 2021). This opinion considers each component's specific impact on performance rather than the impact of IC more broadly.…”

Does corporate governance moderate the relationship between intellectual capital and firm's performance?

“…In recent studies, the association between intellectual capital and corporate governance on firm performance has been scrutinized in other countries. Akkas and Asutay (2022) emphasize that intellectual capital is vital in adding value to enterprises. Intellectual capital significantly impacts corporate sustainability claims (Bananuka et al, 2022) and is negatively affected by the proportion of independent members on the board of directors Mooneeapen et al, 2022).…”

Intellectual capital disclosure (ICD) in Islamic banks: does the diversity of Shariah committee matters?

“…Yet, the documented literature on ICD practices of IBs and the moderating role of SC on the ICD practices of IBs is limited. Previous studies which investigate this relationship either use limited variables (Belal et al , 2018; Akkas and Asutay, 2022; Adznan et al , 2022) or covering other IC research areas such as IC efficiency and bank’s performance (Nomran et al , 2018; Buallay et al , 2020; Kachkar and Yilmaz, 2023). This paper contributes to the IBs’ ICD literature by investigating the moderating effects of the SC on the extent of ICD of IBs.…”

“…Despite the reasonably available literature on the importance of Islamic corporate governance or Shariah governance, the research on SC characteristics and intellectual capital disclosure (ICD) practices is still nascent. Even though studies on the ICD practices in general are relatively well documented, not much has been documented on ICD of IBs with notable exceptions of evidence documented by Belal et al (2018), Buallay et al (2020) and Akkas and Asutay (2022). However, these few studies on ICD of IBs overlooked the moderating role of SC on ICD practices of IBs.…”