Bank diversification strategy and intellectual capital in Ghana: an empirical analysis

Abstract

Purpose The purpose of this paper is to examine the impact of intellectual capital and its components on bank diversification choice. Design/methodology/approach Both asset and income diversification are computed and an unbalanced panel data set of 32 banks covering the period 2000–2015 have been used. The panel corrected standard error regression has been used to account for serial correlation and heteroscedasticity. Findings The study found that intellectual capital determines the choice of diversifying. Precisely, intellectual capital motivates asset diversity but it dissuades income diversification. Human capital and structural capital are major components that determine asset diversity decisions. Income diversification decision, in this case to choose a focus strategy, is determined by human capital. This gives credence for the human capital theory in Ghana. Competition encourages a focus strategy. Bank size and leverage enhances income diversification while stock exchange listing and government ownership fosters the focus strategy. Practical implications Diversification strategy, knowledge base of staff, corporate governance and internal control have been considered as factors leading to the collapse of some Ghanaian banks in 2017–2018. The study provides relevant insights for regulators, decision support units and corporate boards. Intellectual capital and value added metrics should be used for modelling and decision making as they have value relevance. Originality/value This is a premier study that has examined the nexus between diversification strategy and intellectual capital in banks.

Determinants and convergence of income diversification in Ghanaian banks

“…The result of the descriptive statistics of all the variables is presented in Table II, which shows that on average, income diversification is 0.67. This is higher than the score of a little over 0.7 recorded in earlier studies such as Duho et al (2020) and Duho and Onumah (2019). This can be explained by the fact that the current study used a larger dataset.…”

“…Although there is no significant empirical finding to suggest that the 2007-8 global financial crisis affected the sector, there have been various financial sector crises that have bedeviled the industry in this 21st century. In early 2000, some banks collapsed as a result of huge non-performing loans (Duho & Onumah, 2019). Despite reforms over the years, the non-performing loans increased leading to liquidity problems, solvency problems, efficiency weaknesses with the possibility of systemic risk that could affect the whole economy.…”

Intellectual capital and technical efficiency of banks in an emerging market: a slack-based measure

“…Competition increased in the industry over the years and this resulted in growing interest in employing innovation and advanced technologies in the operations of the banks. Examples of some technological applications for the provision of services in the industry include mobile money, online banking services, digital banking and Automatic Teller Machine (ATM) among others (Duho and Onumah, 2019). The following sections provide some insights into the trends and discussions regarding non-performing loans and the status of ATMs in the industry.…”

“…The industry just came out of a regulatory clean-up exercise which led to the size of the industry decreasing, but the asset-base of the banks increased following a recapitalisation exercise (Duho and Onumah, 2019; Duho et al , 2020). Also, the regulator has issued a guide for financial publication for banks and Bank-of-Ghana-licensed financial institutions to follow from 2016.…”

Bank risk, profit efficiency and profitability in a frontier market

“…The aftermath of the directive saw the winding-up of some banks while others merged. At present, 23 banks are operating as universal banks after 9 banks lost their license as a result of the financial sector clean-up (Duho and Onumah, 2019). These current developments have implications for the stability of the banking system through effective risk management practices, strong corporate governance and increased performance of the banks.…”