Abstract
Using the sample of 59 Islamic banks during the period of 2006-2017, the purpose of this paper is to examine the impact of corporate governance mechanisms through the characteristics of board of directors that may influence the intellectual capital (IC) efficiency of Islamic banks. The characteristics of board of directors are represented through the size of the board (board size), the proportion of female members on the board (board female), the number of board meetings (board meeting), the proportion of board members who have financing and accounting expertise (board expertise) and the diversity in terms of board members’ nationalities (board nationality diversity). Meanwhile, IC efficiency has been measured using value-added intellectual coefficient (VAIC). This study provides empirical evidence showing that board expertise has positively associated with IC efficiency. This study also examines the linkage between corporate governance mechanisms and IC components namely HCE, SCE and CEE and found that board expertise exerts positive significant impact to HCE and SCE while no significant impact to CEE. Additionally, board female has significant positive relationship with SCE. The study is extremely pivotal in order to know the determinants that can contribute to the enhancement of IC efficiency in respect of corporate governance of Islamic banks.
Highlights
With the passage of time, the surging contour of knowledge based economies has considerably made the organizations nowadays to stop depending solely on physical capital to elevate their organizational performance. They started to become conscious of an unseen driver that leads to better performance as well, which is intangible asset that famously known as intellectual capital (IC)
Al-Musalli and Ismail (2012a) put an endeavor to analyze the determinants of intellectual capital efficiency where they tested the corporate governance measures as the explanatory variables and the findings suggest that the board size, number of independent directors, domestic strategic institutional ownership and family ownership affect significantly the intellectual capital efficiency
The regression results concerning of Model 1, 1a, 2, 2a, 3, 3a, 4 and 4a which examining the relationship between corporate governance variables and IC efficiency of selected Islamic banks within the period of 2006 until 2017 are presented in Table 7, 8, 9, 10
Summary
With the passage of time, the surging contour of knowledge based economies has considerably made the organizations nowadays to stop depending solely on physical capital to elevate their organizational performance. As highlighted by Barney, Wright, and Ketchen Jr (2001), based on resource-based view theory, every organization possess the resources and capabilities which can be viewed as bundles of tangible and intangible assets where they will be able to create competitive advantage of organization since these resources are valuable, rare, imperfectly imitable, and not substitutable. This is supported by Ljubojevic et al (2013), where they opined that the competitive advantage of particular organization is manifested by the utilization of unique and exceptional resources, inimitable and valuable. This is in concert with the role of intellectual capital that can ensure the value added which is expected to maximize the organizational outcomes via its aforementioned characteristics
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