Impact of Intellectual Capital on Financial Performance of Banks in Tanzania

Janeth N Isanzu

doi:10.18775/jibrm.1849-8558.2015.11.3002

Abstract

Since the financial sector reforms took place in the last two decades, Banks in Tanzania have continued to play the major role in reshaping the economy of the nation. With the emergence of knowledge based economy many firm have changed their way of doing business instead of relying more on physical capital they have shifted to intellectual capital. This is no exception for the banks operating in developing counties Tanzania included. Many studies have been done in the area of intellectual capital and its contribution to the value of the firm. This study sets out to extend the evidence by investigating the intellectual capital of banks operating in Tanzania for the period of four years from 2010 to 2013. Annual reports, especially the profit and loss accounts and balance sheets of the selected banks have been used to obtain the data. The study uses Value Added Intellectual Capital model (VAICTM) in determining intellectual capital and its three major components like Human Capital Efficiency (HCE) Structural capital efficiency (SCE) and Capital Employed Efficiency (CEE). The results revealed that Intellectual capital has a positive relationship with financial performance of banks operating in Tanzania and also when the VAICTM was divided into its three components it was discovered that the financial performance is positively related to Human capital efficiency and Capital employed efficiency but is negatively related to Structural capital efficiency.

Highlights

The 21st century is more dominated by knowledge economy, many firms are shifting from using physical capital and embrace intellectual capital, as more and more firms are trying to find better ways to use their resources efficiently in order to sustain in the dynamic changing business environment, there is a drastic move by many firms from production era to knowledge era and from production labor to knowledge worker (Lipunga, 2014)
Tan et al (2007) using data from 150 publicly listed companies in Singapore conducted a similar kind of study to assess the relationship between the intellectual capital of firms and their financial performance. They used value added intellectual capital coefficient (VAIC) TM methodology The results proved that intellectual capital and firm performance were positively associated in particular, intellectual capital was found to be correlated to future company performance, and the rate of growth of a company’s intellectual capital was positively associated to the performance
The variables considered in the study are return on assets (ROA), and value added intellectual capital coefficient (VAIC) and its components

Summary

Introduction

The 21st century is more dominated by knowledge economy, many firms are shifting from using physical capital and embrace intellectual capital, as more and more firms are trying to find better ways to use their resources efficiently in order to sustain in the dynamic changing business environment, there is a drastic move by many firms from production era to knowledge era and from production labor to knowledge worker (Lipunga, 2014). Being said intangible assets especially Knowledge are gaining prominence than ever before as a matter of survival and of achieving competitive advantage for the firm to compete strategically (Latif et al ,2012).In today’s fast moving economy with the rapid growth of knowledge and technology innovation, the growth of organization has changed to cope with the changing environment. With amounting competitions in the global economy intellectual capital has become the main ingredient and vital for the organization to sustain the competitive world in which they operate and to create more values. It can be put as an established fact by (Bontis, 2001) that intellectual capital has become the critical driver for sustainability. There is a need to measure intellectual capital of the firm and its impact on financial performance, in order to create more awareness

Methods

Results

Conclusion