Risk-adjusted banks' resource-utilization and investment efficiencies: does intellectual capital matter?

Abstract

PurposeThe purpose of this study is twofold. First, this research estimates banks' efficiencies from the perspectives of resource utilization and investment after incorporating risk measures as an exogenous input in the investment-efficiency stage. Second, the current study examines the relationship between intellectual capital (IC) and banks' efficiencies.Design/methodology/approachFirst, this study uses a dynamic network data envelopment analysis approach in investigating the efficiencies of 24 Taiwanese banks in 2007–2018 from two perspectives. Second, this research utilizes various regression techniques, namely, ordinary least squares (OLS), robust least squares and truncated regression, to gauge the impact of IC on banks' efficiencies. Typically, IC is determined based on a monetary value-based measure and value-added intellectual coefficient (VAICTM).FindingsResource-utilization (investment) efficiencies were observed as 0.941 (0.964), thereby contributing to the mean overall efficiency of the sample banks at 0.952. However, the related efficiency changes decline over the sample period, thereby suggesting that the average banks' efficiencies hardly increase. Regression analyses show a significantly positive relationship between IC and banks' overall resource-utilization and investment efficiencies.Research limitations/implicationsOverall, this study suggests that researchers should consider risks when estimating banks' efficiencies owing to their connection to banks' investment performance. From banks' dynamic two-stage efficiencies, this study demonstrated that investments in IC will bring improved future economic benefits.Originality/valueDifferent from prior studies, this study improves banks' efficiency evaluation models by incorporating risk measures and assuming weighted periods for the 2007–2008 global financial crisis. Moreover, the use of monetary value-based measure of IC provides consistent results as the commonly-used VAICTM does.

Does ownership structure affect firm performance? Evidence of Indian bank efficiency before and after the Global Financial Crisis

“…However, within the literature dealing with nonparametric techniques used to estimate technical efficiency, like DEA, the issue of endogeneity has not received much consideration. To the best of our knowledge, only a few studies —often in fields other than banking— attempt to test the potential distortions within these models (see, for instanceOrme and Smith, 1996; ; Bifulco and Bretschneider, 2001; Ruggiero, 2004; see and Akpan et al., 2020; Kweh et al., 2021; Mergoni and De Witte, 2022, for a detailed review on endogeneity issues in efficiency measurement; see also Cordero et al., 2015; Aiello and Bonanno, 2018, dealing with endogeneity in the banking literature using DEA models to estimate technical efficiency, and D'Inverno et al., 2021, for endogeneity in non‐DEA models).…”

“…Avkiran, 2015; Chao et al., 2015; Fukuyama and Weber, 2015, 2017; Wu et al., 2016; Wanke et al., 2019). However, risk measures and their dynamic effects within banks' production processes receive limited attention in the literature, as only a handful of models take risk into account in estimating bank efficiency (see, for instance, Kweh et al., 2021).…”

“…This two‐stage approach constitutes a methodological cornerstone in banking research on inefficiency (Fukuyama and Matousek, 2011). We complete this using “quasi‐instrumental variables” to address the problem of endogeneity between bank efficiency and its explanatory factors (Orme and Smith, 1996; Bifulco and Bretschneider, 2001; Ruggiero, 2004; Cordero et al., 2015; Aiello and Bonanno, 2018;Akpan et al., 2020; Kweh et al., 2021; Mergoni and De Witte, 2022;).…”

Intellectual capital and dividend policy: the effect of CEO characteristics

“…In particular, the interconnection between investment, financing and dividend decisions is fundamental in achieving the company's ultimate goal: value creation (Brealey et al, 2020). For instance, Kweh et al (2021) analyzed the impact of IC on bank investments. The ability of the distinctive elements of the IC (human, structural and relational capital) to influence the management of resources necessary to implement profitable investments led to a causal effect between the IC and corporate finance decisions (Kweh et al, 2021).…”

“…For instance, Kweh et al (2021) analyzed the impact of IC on bank investments. The ability of the distinctive elements of the IC (human, structural and relational capital) to influence the management of resources necessary to implement profitable investments led to a causal effect between the IC and corporate finance decisions (Kweh et al, 2021). Moreover, corporate finance also concerns financing decisions and payout policy.…”