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

Research output: Contribution to journalArticle

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, firmcomplexity, type of auditor and operating region.
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.
Original languageEnglish
JournalJournal of Islamic Accounting and Business Research
DOIs
StateAccepted/In press - 25 Jun 2016

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capital
Coefficient
performance
Methodology
value added
institution
Human capital
methodology
human capital
accounting
bank
firm
scientist
tool
effect
data
Banking
Finance
Annual
Design methodology

Cite this

@article{7dbfef09738248a78053ed33735c9ffb,
title = "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, firmcomplexity, type of auditor and operating region.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 suggestthat 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.",
author = "Roszaini Haniffa",
note = "DOI not working",
year = "2016",
month = "6",
doi = "10.1108/JIABR-06-2016-0071",
journal = "Journal of Islamic Accounting and Business Research",
issn = "1759-0817",
publisher = "Emerald Group Publishing Ltd.",

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N2 - 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, firmcomplexity, type of auditor and operating region.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 suggestthat 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.

AB - 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, firmcomplexity, type of auditor and operating region.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 suggestthat 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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