Income Diversification Strategy in Banks and the Main Driver of Intellectual Capital: New Empirical Evidence from a Developing Country

It could be said that the knowledge-based management is seen as the key source that may foster banking operations in increasingly competitive environment, while income diversity strategy that is closely market-oriented activities may bring new sources of income to banks. Inspired by this fact, the study aims to answer the straightforward question of whether implementing intellectual capital (IC) has played a crucial role in fueling income diversification strategy of banks. Based on a data set of 26 domestic banks in Vietnam from 2006 to 2020 and performing the original value-added intellectual coefficient (VAIC) model as the measure of IC and the extended VAIC model as an alternative method, our consistent evidence demonstrates a positive correlation between IC and income diversification of banks. This finding withstands through some robustness tests employed. Moreover, we find that small banks and banks having higher asset quality tend to harness IC more effectively than others. Regarding IC’s components, the results indicate that capital employed efficiency seems to be the most important factor enhancing diversified incomes compared to human and structural capital efficiency, while the opposite is found in the case of relational capital efficiency. Also, banks with lower asset quality need to take human capital efficiency into account to mitigate the negative impact resulting from this component.