Determinants of financial performance of Islamic banks: an intellectual capital perspective

Abstract

Purpose-The purpose of this paper is to empirically examine the effect of intangible resources i.e. intellectual capital (IC) on financial performance of 64 Islamic financial institutions (IFIs) operating in eighteen different countries for the period 2007-2011, while controlling for firm-specific variables viz. bank-size, level of risk, listing status, and firmcomplexity. Design/methodology/approach-The required data to calculate different constituents of IC is derived from Bankscope database. Value Added Intellectual Coefficient (VAIC) methodology devised by Pulic is used to determine the impact of IC on financial performance of IFIs. Findings-Results indicate a significant positive relationship between Value Added Intellectual Coefficient (VAIC) and accounting performance based on ROA. The results further indicate a significant positive relationship between accounting performance and capital employed efficiency (CEE) and human capital efficiency (HCE), but no significant relationship with regards to structural capital efficiency (SCE). Overall, the results suggest that value creation capability of IFIs is highly influenced by HCE and CEE. Research limitations-The main limitation of the present study lies in its methodological tool, the VAIC methodology, which has been criticised by some researchers as not really measuring IC. Despite the inherent limitation of the VAIC methodology which relies on secondary data published in annual reports, it is still considered by some researchers as one of the best available tool to measure firms' IC in the absence of access to detailed internal information on IC. Practical implications-The findings may serve as a useful input for Islamic bankers in managing their investments in IC within their institutions. Originality/value-The main contribution of this paper is to use a previously little studied area, Islamic banking and finance, to identify the effect of intellectual capital on performance.

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“…However, no significant relationship with regards to structural capital efficiency was determined. The results implied that value creation capability of IFIs was highly affected by HCE and CEE (Nawaz and Haniffa, 2017).…”

Management Background, Intellectual Capital and Financial Performance of Indonesian Bank

“…Mostly, it is difficult to gather internal data from the firms and the most reliable source for data is their published financial report as their external data (Nawaz & Haniffa, 2017). It is not a secret that the firm management won't allow outsider to peek a look at their internal management report or data even if it will be used as educational purpose for the masses.…”

The impact of intellectual capital on performance in Brazilian companies

“…Therefore, they shall continue to develop their human capital and consequently shall improve their performance. In other words, human capital creates new ideas and techniques that may be incorporated into equipment and production method, delivery services, thus improving internal relationships as well external relationships which eventually will better performance (Nawaz & Haniffa, 2017) or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information.…”

“…Moreover, recent studies show an increasing attention given to intellectual capital in literature, as the study by (Sardo & Serrasqueiro, 2017;Dzenopoljac et al, 2017;Nawaz & Haniffa, 2017;Amin & Aslam, 2017).…”