IDEAS home Printed from https://ideas.repec.org/a/spr/jknowl/v15y2024i4d10.1007_s13132-024-01901-4.html
   My bibliography  Save this article

Analyzing the Impact of Intellectual Capital on the Financial Performance: A Comparative Study of Indian Public and Private Sector Banks

Author

Listed:
  • Monika Barak

    (Thapar Institute of Engineering and Technology)

  • Rakesh Kumar Sharma

    (Thapar Institute of Engineering and Technology)

Abstract

This paper explores the effect of intellectual capital (I.C) on the financial performance (F.P) of 12 public and 17 private sector banks in India. To get a comprehensive viewpoint, the study will try to answer the research question, i.e., Does the intellectual capital affect the financial performance of the Indian banks with respect to their multidimensionality? We used intellectual capital and financial performance as multidimensional constructs (human capital (H.C), capital employed (C.E), structural capital (S.C), and relational capital (R.C) for intellectual capital and return on assets (ROA), return on equity (ROE), return on capital employed (ROCE), and return on sales (ROS) for financial performance). Data were collected over 12 years, specifically from 2010 to 2022 from each bank. This study employed the modified value-added intellectual coefficient (MVAIC) measure as an alternative to the disputed value-added intellectual capital (VAIC) model to address the shortcomings of the previous research. The present study employed advanced longitudinal cointegration techniques to authenticate and validate the results. The fully modified ordinary least squares (FMOLS) method is employed to assess the effectiveness of the intellectual capital. The results suggest a positive relationship between human capital and all financial metrics, except for ROE, in the context of public sector banks. Further efficiency of capital employed and structural capital positively affects public sector bank financial performance indicators like ROA, ROE, ROCE, and ROS. Private sector banks have a negative correlation between relational capital and ROS whereas it demonstrates a positive association with ROCE. Similarly, there is a negative correlation between relational capital and both ROA and ROE in the case of public sector banks. For instance, the MVAIC model improves all financial performance measures except ROA, especially in private sector banking. The findings will assist executives, government officials, and policymakers in quantifying the efficiency and discerning the essential intellectual elements that enhance their effectiveness. Additionally, these findings will aid in devising strategies to foster and enhance their intellectual capacity.

Suggested Citation

  • Monika Barak & Rakesh Kumar Sharma, 2024. "Analyzing the Impact of Intellectual Capital on the Financial Performance: A Comparative Study of Indian Public and Private Sector Banks," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(4), pages 20320-20348, December.
    • Handle: RePEc:spr:jknowl:v:15:y:2024:i:4:d:10.1007_s13132-024-01901-4
    DOI: 10.1007/s13132-024-01901-4
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s13132-024-01901-4
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s13132-024-01901-4?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Nasif Ozkan & Sinan Cakan & Murad Kayacan, 2017. "Intellectual capital and financial performance: A study of the Turkish Banking Sector," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 17(3), pages 190-198, September.
    2. Tu DQ Le & Trang NT Ho & Dat T Nguyen & Thanh Ngo, 2022. "Intellectual capital – bank efficiency nexus: evidence from an emerging market," Cogent Economics & Finance, Taylor & Francis Journals, vol. 10(1), pages 2127485-212, December.
    3. A.A. Ousama & Helmi Hammami & Mustafa Abdulkarim, 2019. "The association between intellectual capital and financial performance in the Islamic banking industry," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing Limited, vol. 13(1), pages 75-93, December.
    4. Nguyet Thi Nguyen, 2023. "The Impact of Intellectual Capital on Service Firm Financial Performance in Emerging Countries: The Case of Vietnam," Sustainability, MDPI, vol. 15(9), pages 1-19, April.
    5. Ranjit Tiwari & Harishankar Vidyarthi, 2018. "Intellectual capital and corporate performance: a case of Indian banks," Journal of Accounting in Emerging Economies, Emerald Group Publishing Limited, vol. 8(1), pages 84-105, February.
    6. Malina Hanum Mohd Kamal & Rosfatihah Che Mat & Najihah Abdul Rahim & Norhusniyati Husin & Irwan Ismail, 2012. "Intellectual Capital and Firm Performance of Commercial Banks in Malaysia," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(4), pages 577-590.
    7. Omar Al Farooque & Rayed Obaid Hammoud AlObaid & Ashfaq Ahmad Khan, 2023. "Does intellectual capital in Islamic banks outperform conventional banks? Evidence from GCC countries," Asian Review of Accounting, Emerald Group Publishing Limited, vol. 31(5), pages 805-831, June.
    8. Shashi Kapoor & Ashish Saihjpal, 2022. "Intellectual capital and performance of Indian companies: an empirical investigation," International Journal of Learning and Intellectual Capital, Inderscience Enterprises Ltd, vol. 19(6), pages 608-623.
    9. Md. Sohel Rana & Syed Zabid Hossain, 2023. "Intellectual Capital, Firm Performance, and Sustainable Growth: A Study on DSE-Listed Nonfinancial Companies in Bangladesh," Sustainability, MDPI, vol. 15(9), pages 1-23, April.
    10. 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.
    11. Malina Hanum Mohd Kamal & Rosfatihah Che Mat & Najihah Abdul Rahim & Norhusniyati Husin & Irwan Ismail, 2012. "Intellectual Capital and Firm Performance of Commercial Banks in Malaysia," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(4), pages 577-590, August.
    12. Muhammad Nadeem & Christopher Gan & Cuong Nguyen, 2018. "The Importance of Intellectual Capital for Firm Performance: Evidence from Australia," Australian Accounting Review, CPA Australia, vol. 28(3), pages 334-344, September.
    13. Mark A. Youndt & Mohan Subramaniam & Scott A. Snell, 2004. "Intellectual Capital Profiles: An Examination of Investments and Returns," Journal of Management Studies, Wiley Blackwell, vol. 41(2), pages 335-361, March.
    14. 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.
    15. Prasojo Prasojo & Winwin Yadiati & Tettet Fitrijanti & Memed Sueb, 2022. "Cross-Region Comparison Intellectual Capital and Its Impact on Islamic Banks Performance," Economies, MDPI, vol. 10(3), pages 1-15, March.
    16. Pendo Shukrani Kasoga & Mohammed M Elgammal, 2020. "Does investing in intellectual capital improve financial performance? Panel evidence from firms listed in Tanzania DSE," Cogent Economics & Finance, Taylor & Francis Journals, vol. 8(1), pages 1802815-180, January.
    17. King Carl Tornam Duho, 2020. "Intellectual capital and technical efficiency of banks in an emerging market: a slack-based measure," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 47(7), pages 1711-1732, May.
    18. Ihyaul Ulum & Noviar Kharismawati & Dhaniel Syam, 2017. "Modified value-added intellectual coefficient (MVAIC) and traditional financial performance of Indonesian biggest companies," International Journal of Learning and Intellectual Capital, Inderscience Enterprises Ltd, vol. 14(3), pages 207-219.
    19. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
    20. Meles, Antonio & Porzio, Claudio & Sampagnaro, Gabriele & Verdoliva, Vincenzo, 2016. "The impact of the intellectual capital efficiency on commercial banks performance: Evidence from the US," Journal of Multinational Financial Management, Elsevier, vol. 36(C), pages 64-74.
    21. Monika Barak & Rakesh Kumar Sharma, 2023. "Investigating the Impact of Intellectual Capital on the Sustainable Financial Performance of Private Sector Banks in India," Sustainability, MDPI, vol. 15(2), pages 1-21, January.
    22. Faizi Weqar & S.M. Imamul Haque, 2020. "Intellectual capital and corporate financial performance in India's central public sector enterprises," International Journal of Learning and Intellectual Capital, Inderscience Enterprises Ltd, vol. 17(1), pages 77-97.
    23. Ranjit Tiwari & Harishankar Vidyarthi & Anand Kumar, 2023. "Nexus between Intellectual Capital and Bank Productivity in India," JRFM, MDPI, vol. 16(1), pages 1-17, January.
    24. Md. Anhar Sharif Mollah & Md. Abdur Rouf, 2022. "The impact of intellectual capital on commercial banks' performance: evidence from Bangladesh," Journal of Money and Business, Emerald Group Publishing Limited, vol. 2(1), pages 82-93, March.
    25. Adesina, Kolade Sunday, 2019. "Bank technical, allocative and cost efficiencies in Africa: The influence of intellectual capital," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 419-433.
    26. Amrizah Kamaluddin & Rashidah Abdul Rahman, 2013. "The intellectual capital model: the resource-based theory application," International Journal of Learning and Intellectual Capital, Inderscience Enterprises Ltd, vol. 10(3/4), pages 294-313.
    27. Leena Afroz Mostofa Chowdhury & Tarek Rana & Mahmuda Akter & Mahfuzul Hoque, 2018. "Impact of intellectual capital on financial performance: evidence from the Bangladeshi textile sector," Journal of Accounting & Organizational Change, Emerald Group Publishing Limited, vol. 14(4), pages 429-454, November.
    28. Harishankar Vidyarthi, 2019. "Dynamics of intellectual capitals and bank efficiency in India," The Service Industries Journal, Taylor & Francis Journals, vol. 39(1), pages 1-24, January.
    29. Znar Ahmed & Muhammad Rosni Amir Hussin & Kashan Pirzada, 2022. "The Impact of Intellectual Capital and Ownership Structure on Firm Performance," JRFM, MDPI, vol. 15(12), pages 1-15, November.
    30. Suryanarayan Mohapatra & Sangram Keshari Jena & Amarnath Mitra & Aviral Kumar Tiwari, 2019. "Intellectual capital and firm performance: evidence from Indian banking sector," Applied Economics, Taylor & Francis Journals, vol. 51(57), pages 6054-6067, December.
    31. Birger Wernerfelt, 1995. "The resource‐based view of the firm: Ten years after," Strategic Management Journal, Wiley Blackwell, vol. 16(3), pages 171-174.
    32. Kanishka Gupta & T. V. Raman, 2021. "The nexus of intellectual capital and operational efficiency: the case of Indian financial system," Journal of Business Economics, Springer, vol. 91(3), pages 283-302, April.
    33. Vo, Duc, 2018. "Should Bankers Be Concerned with Intellectual Capital? A Study of the Thai Banking Sector," MPRA Paper 103275, University Library of Munich, Germany.
    34. Ngoc Phu Tran & Duc Hong Vo, 2020. "Human capital efficiency and firm performance across sectors in an emerging market," Cogent Business & Management, Taylor & Francis Journals, vol. 7(1), pages 1738832-173, January.
    35. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
    36. Jian Xu & Binghan Wang, 2019. "Intellectual Capital Performance of the Textile Industry in Emerging Markets: A Comparison with China and South Korea," Sustainability, MDPI, vol. 11(8), pages 1-16, April.
    37. repec:asi:aeafrj:2012:p:504-517 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Jian Xu & Muhammad Haris & Hongxing Yao, 2019. "Should Listed Banks Be Concerned with Intellectual Capital in Emerging Asian Markets? A Comparison between China and Pakistan," Sustainability, MDPI, vol. 11(23), pages 1-23, November.
    3. Hongxing Yao & Muhammad Haris & Gulzara Tariq & Hafiz Mustansar Javaid & Muhammad Aamir Shafique Khan, 2019. "Intellectual Capital, Profitability, and Productivity: Evidence from Pakistani Financial Institutions," Sustainability, MDPI, vol. 11(14), pages 1-30, July.
    4. Monika Barak & Rakesh Kumar Sharma, 2023. "Investigating the Impact of Intellectual Capital on the Sustainable Financial Performance of Private Sector Banks in India," Sustainability, MDPI, vol. 15(2), pages 1-21, January.
    5. Md. Sohel Rana & Syed Zabid Hossain, 2023. "Intellectual Capital, Firm Performance, and Sustainable Growth: A Study on DSE-Listed Nonfinancial Companies in Bangladesh," Sustainability, MDPI, vol. 15(9), pages 1-23, April.
    6. Wei-han Liu & Qian Long Kweh, 2022. "Reexamining nonlinear effects of intellectual capital on firm efficiency," Annals of Operations Research, Springer, vol. 315(2), pages 1319-1344, August.
    7. Dat T. Nguyen & Tu D. Q. Le & Tin H. Ho, 2021. "Intellectual Capital and Bank Risk in Vietnam—A Quantile Regression Approach," JRFM, MDPI, vol. 14(1), pages 1-15, January.
    8. Pearl Abredu & Cai Li & Frank Kofi Essien & Isaiah Agbenu Akanbi Adegoke, 2023. "Unleashing Potential: Overcoming Bottlenecks and Catalyzing Innovations in Intellectual Capital Intellectualization of Small and Medium-Sized Enterprises in Jiangsu During the Post-Industrial Era," SAGE Open, , vol. 13(4), pages 21582440231, December.
    9. Abdu Mohammed Assfaw & Dhiraj Sharma, 2024. "Does corporate governance spur bank intellectual capital in an emerging economy? A system GMM analysis from Ethiopia," Future Business Journal, Springer, vol. 10(1), pages 1-28, December.
    10. Faizi Weqar & Syed Noorul Shajar & Mohammad Kashif & Saqib Noman & Mohsin Khan, 2024. "Enhancing financial sustainability: the power of intellectual capital in India’s renewable energy industry," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-12, December.
    11. Juhi Gupta & Payal Rathore & Smita Kashiramka, 2023. "Impact of Intellectual Capital on the Financial Performance of Innovation-Driven Pharmaceutical Firms: Empirical Evidence from India," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 14(2), pages 1052-1076, June.
    12. Md. Mominur Rahman & Bilkis Akhter, 2021. "The impact of investment in human capital on bank performance: evidence from Bangladesh," Future Business Journal, Springer, vol. 7(1), pages 1-13, December.
    13. 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.
    14. Guangchun Jin & Jian Xu, 2022. "Does Intellectual Capital Affect Financial Leverage of Chinese Agricultural Companies? Exploring the Role of Firm Profitability," Sustainability, MDPI, vol. 14(5), pages 1-14, February.
    15. Ahmed Jinjiri Bala & Aminu Hassan & Muhammad Liman Muhammad, 2024. "Do board characteristics matter in the relationship between intellectual capital efficiency and firm value? Evidence from the Nigerian oil and gas downstream sector," Future Business Journal, Springer, vol. 10(1), pages 1-24, December.
    16. Tajudeen Lawal & Daniya Adeiza Abdulazeez & Mohammed Yabagi Ibrahim, 2019. "Human Capital Efficiency And Profitability Of Quoted Integrated Oil And Gas Companies In Nigeria," JOURNAL STUDIA UNIVERSITATIS BABES-BOLYAI NEGOTIA, Babes-Bolyai University, Faculty of Business.
    17. Sarah Athirah Saruchi & Nor Aiza Mohd Zamil & Rohaida Basiruddin & Nor Faezah Ghazi Ahmad, 2019. "Examining the Impact of Corporate Governance on Intellectual Capital: Empirical Evidence of Islamic Banks," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 9(3), pages 104-117, July.
    18. Muhammad Imran Nazir & Yong Tan & Muhammad Rizwan Nazir, 2021. "Intellectual capital performance in the financial sector: Evidence from China, Hong Kong, and Taiwan," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 6089-6109, October.
    19. Snezhana Hristova & Dusica Stevceska-Srbinovska, 2019. "MANAGING TECHNOLOGY IN MACEDONIAN SMEs CONTEXT: PERCEPTIONS, PRACTICES AND CHALLENGES," JOURNAL STUDIA UNIVERSITATIS BABES-BOLYAI NEGOTIA, Babes-Bolyai University, Faculty of Business.
    20. Trung Duc Nguyen & Chi Huu Lu, 2024. "Does Intellectual Capital Foster Deposit Growth in Banking System? Empirical Evidence from a Developing Economy," Advances in Decision Sciences, Asia University, Taiwan, vol. 28(2), pages 93-115, June.

    More about this item

    Keywords

    Indian public and private sector banks; Intellectual capital; Resource-based theory; Stakeholder theory; FMOLS;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jknowl:v:15:y:2024:i:4:d:10.1007_s13132-024-01901-4. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.