Effects of intellectual capital efficiency on the financial performance of share companies; with the special reference of Ethiopian banks and insurance companies.

Abstract

This study empirically examines the effect of intellectual capital on the financial performance of Ethiopian bank and insurance companies. Specifically, this study examined the effect of VAIC (HCE, SCE, CEE), liquidity, leverage and size on the financial performance of Ethiopian bank and insurance companies. To investigate the effect of such factors, panel data were used from national bank of Ethiopia and from private banks and insurance companies audited annual report. The samples of this study were ten banks and insurance companies covering the period of 2009-2013. To analyze the data, both descriptive and regression analysis were used through STAT version 13, and fixed effect panel data estimation technique is applied based on Hausman specification test results. Furthermore, this study finding suggests that intellectual capital has a positive and significant association with the financial performance of banks and insurance companies in Ethiopia. Subsequently, when the VAIC is segregated in to its three major components, we found that financial performance is positively associated with capital employed efficiency and human capital efficiency, but not with structural capital efficiency. Therefore, many stakeholders such as policy makers, regulators, shareholders, and managers of banks and insurance companies in Ethiopia may use the findings to attach different values to the three components of VAIC.