Does intangible assets affect the financial performance and policy of commercial banks' in the emerging market?

Abstract

In a digital and knowledge based economy, intangible assets are predominant and their role along with age and knowledge has become key success factors for firms. However, a very little attention was given to the intangible assets in the banking sectors’ in Ethiopia and the effect still not studied yet. Therefore, the aim of this study is to empirically examine the effect of intangible assets on the financial performance and policy of 17 commercial banks in Ethiopia from the year 2017 to 2020. Return on asset and equity were used to measure the financial performance and debt as a measure of financial policy. The intangible asset is used as the main explanatory variable and asset size and liquidity as control variables. Random effect estimation technique for panel data was used. The result revealed that intangible asset has positive effect on the financial performance measured both by ROA and ROE at 5% significance level while, negative effect on the financial policy of commercial banks in Ethiopia at 1% significance level. Moreover, the study found asset size has significant and positive effect on ROA and ROE at 1% and 5% significance level respectively. Liquidity ratio has also significant positive effect on the financial performance measured both by ROA and ROE at 5% significance level. Finally, the finding revealed asset size and liquidity ratio has significant positive effect on the financial policy of commercial banks in Ethiopia at 10% and 1% significance level respectively. Therefore, the study concludes that financial performance and policy is achieved not only by using physical assets but also using intangible assets. Thus, the boards and mangers of commercial banks’ ought to plan and maintain the appropriate ratio of intangible assets to total assets for securing sustainable development in achieving the maximization of shareholders wealth and to have optimum debt.