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

Author

Listed:
  • Tasawar Nawaz
  • Roszaini Haniffa

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 18 different countries for the period 2007-2011, while controlling for firm-specific variables, namely, bank size, level of risk, listing status, and firm complexity. Design/methodology/approach - The required data to calculate different constituents of IC are 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 VAIC and accounting performance based on return on assets (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. Overall, the results suggest that value creation capability of IFIs is highly influenced by HCE and CEE. Research limitations/implications - The main limitation of the present study lies in its methodological tool, the VAIC methodology, which has been criticized 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.

Suggested Citation

  • Tasawar Nawaz & Roszaini Haniffa, 2017. "Determinants of financial performance of Islamic banks: an intellectual capital perspective," Journal of Islamic Accounting and Business Research, Emerald Group Publishing Limited, vol. 8(2), pages 130-142, April.
    • Handle: RePEc:eme:jiabrp:jiabr-06-2016-0071
    DOI: 10.1108/JIABR-06-2016-0071
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    Citations

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    Cited by:

    1. Mehmet Asutay & Ubaidillah, 2024. "Examining the Impact of Intellectual Capital Performance on Financial Performance in Islamic Banks," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(1), pages 1231-1263, March.
    2. Tasawar Nawaz & Oliver Ohlrogge, 2023. "Clarifying the impact of corporate governance and intellectual capital on financial performance: A longitudinal study of Deutsche Bank (1957–2019)," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 3808-3823, October.
    3. Ummu Salma Al-Azizah & Bagus Pamungkas Wibowo, 2023. "Impact of Intellectual Capital on Financial Performance: Panel Evidence from Banking Industry in Indonesia," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 5, pages 51-65.
    4. Monika Barak & Rakesh Kumar Sharma, 2024. "Does intellectual capital impact the financial performance of Indian public sector banks? An empirical analysis using GMM," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-11, December.
    5. Atta Ullah & Chen Pinglu & Saif Ullah & Ningyu Qian & Mubasher Zaman, 2023. "Impact of intellectual capital efficiency on financial stability in banks: Insights from an emerging economy," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1858-1871, April.

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