Should bankers be concerned with Intellectual capital? A study of the Thai banking sector

Abstract

Purpose The purpose of this paper is to examine the causal effect of intellectual capital (IC) performance on financial performance at Thai listed banks. Design/methodology/approach Data are collected from 16 listed banks in Thailand for the period 1997–2016. This paper uses the value-added intellectual coefficient methodology suggested by Pulic (1998, 2004) to measure IC. This study employs a fixed-effects and random-effects model and generalized method of moments (GMM) estimator to investigate the causal effect of IC on financial performance. Findings The results show that bank profitability is driven mainly by capital employed efficiency to make a profit. However, human capital efficiency marginally reduces bank profitability in the current period but has positive effects on future profitability. Research limitations/implications First, this study does not cover data on foreign banks, which reduces the generalizability of the results. Second, financial statements can be manipulated through accounting adjustments. Lastly, subsequent research should control for more bank characteristics, such as bank ownership, the non-performing loan ratio and R&D expenditure. Practical implications To achieve higher future profitability, banks should not only manage their physical and financial capital effectively but also improve employee efficiency. Originality/value This paper contributes to the literature on IC in the banking sector in emerging countries. Moreover, this paper is the first to employ the GMM method in the banking context to address possible endogeneity problems.

Intellectual Capital, Profitability, and Productivity: Evidence from Pakistani Financial Institutions

“…Firer and Williams [1] also emphasized the importance of PC in improving the sustainable performance of an institution. However, previously, many studies reported the positive impact of CEE on performance [4,6,12,18,[32][33][34]39,41,52,58,63,67,71,75,77], while some reported no relationship between CEE and performance [1,10,35,37,38,43]. We thus, pose the following hypothesis:…”

“…However, literature has provided mixed evidence about the impact of SCE on performance. Previously, some researchers reported a positive relationship [6,12,33,52,74,81,92,93] and some reported an insignificant relationship between SCE and performance [32,34,39,58,68,69,71,72,75]. Thus, based on the theories and literature, we pose our hypothesis: Hypothesis 4.…”

“…In addition to a positive relationship, some studies found no relationship between VAIC and the performance of financial institutions in different countries [18,34,75]. For instance, using a sample of 40 Australian financial companies over the period 2006-2008, Joshi, Cahill, Sidhu and Kansal [18] applied linear regression and found no relationship between VAIC and its components, i.e., HCE, SCE, and ROA.…”

“…The above discussed studies applied linear regressions, i.e., OLS, pooled OLS, and multiple regression, which produce biased and inconsistent results if the effects of unobserved heterogeneity and endogenous variables are not taken into consideration [4,49]. However, some studies applied dynamic regression, i.e., GMM, in both the financial and nonfinancial sectors to offer reliable results by controlling for endogeneity and unobserved heterogeneity [4,31,37,38,43,67,74,75]. Using a sample of 127 Indonesian firms over the period 2010-2017, Soetanto and Liem [38] applied pooled OLS, FE, and GMM regressions and found a positive impact of MVAIC and its components, i.e., SCE and CEE, on ROA.…”

“…However, their study was the first which also reported an inverted U-shaped relationship between VAIC and profitability. Using a sample of 16 Thai banks over the period 1997-2016, Tran and Vo [75] applied OLS and GMM regressions and found no relationship between VAIC and ROA. Among VAIC components, their study reported a positive relationship between CEE and ROA while a negative relationship between HCE and ROA.…”