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How does human capital efficiency impact credit risk?: the case of commercial banks in the GCC

Author

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  • Jamila Abaidi Hasnaoui
  • Amir Hasnaoui

Abstract

Purpose - This paper aims to assess human capital efficiency's impact on commercial banks' credit risk in six GCC member countries. Design/methodology/approach - The study employs quarterly balanced panel data of banks between 2014 and 2019. The authors use three different constructs of credit risk, namely the probability of default which is a forward-looking quantification, a book value-based infection ratio and independent opinion of credit ratings, to assess the relationship with human capital efficiency. Different macro and firm-specific control variables are introduced, including a dummy for technological innovation and a GARCH-based measure of oil price volatility. Findings - The findings of this study reveal that human capital efficiency is negatively related to the credit risk profile and banks with higher human capital efficiency tend to have lower credit risk. These results remained robust across the three definitions of credit risk used in this study. Originality/value - This study is unique in exploring the impact of human capital efficiency on credit risk because credit risk is not only a central determinant of bank performance but also can trigger a systemic panic. Therefore, it is vital to assess its relationship with human capital efficiency. The different constructs of credit risk are innovative with reference to human capital. Lastly, using EVA as a measure of value addition in the context of human capital efficiency is a methodological contribution.

Suggested Citation

  • Jamila Abaidi Hasnaoui & Amir Hasnaoui, 2022. "How does human capital efficiency impact credit risk?: the case of commercial banks in the GCC," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 23(5), pages 639-651, September.
    • Handle: RePEc:eme:jrfpps:jrf-04-2022-0083
    DOI: 10.1108/JRF-04-2022-0083
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    Citations

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    Cited by:

    1. Lang, Qiaoqi & Ma, Feng & Mirza, Nawazish & Umar, Muhammad, 2023. "The interaction of climate risk and bank liquidity: An emerging market perspective for transitions to low carbon energy," Technological Forecasting and Social Change, Elsevier, vol. 191(C).
    2. Rahat, Birjees & Nguyen, Pascal, 2023. "Does ESG performance impact credit portfolios? Evidence from lending to mineral resource firms in emerging markets," Resources Policy, Elsevier, vol. 85(PB).
    3. Zhu, Bo & Liang, Chao & Mirza, Nawazish & Umar, Muhammad, 2023. "What drives gearing in early-stage firms? Evidence from blue economy startups," Journal of Business Research, Elsevier, vol. 161(C).
    4. Shan, Shan & Mirza, Nawazish & Umar, Muhammad & Hasnaoui, Amir, 2023. "The nexus of sustainable development, blue financing, digitalization, and financial intermediation," Technological Forecasting and Social Change, Elsevier, vol. 195(C).

    More about this item

    Keywords

    Human capital efficiency; Credit risk; Probability of default; G20; G21; J24;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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