Intellectual capital and bank performance: the moderating role of income diversification

Abstract

PurposeThis study examines whether income diversification moderates the relationship between intellectual capital and bank performance among East African banks.Design/methodology/approachThe study uses a sample of 53 East African banks and a panel dataset for the period 2010–2018. The hypotheses are tested through a hierarchical regression model.FindingsThe regression results indicate that intellectual capital (IC) significantly affects bank performance. Further, the study finds that income diversification has a negative and significant effect on bank performance. The results indicate that income diversification reduced the overall impact of IC (Value Added Intellectual Capital (VAIC)) efficiency on bank performance for the moderating influence. However, the moderating role of income diversification on the relationship between individual components of VAIC (HCE, SCE and CEE) varies. While income diversification enhanced the impact of structural capital efficiency (SCE) on bank performance, it also reduced the effect of human capital efficiency (HCE). Additionally, income diversification did not moderate the impact of capital employed efficiency (CEE) on bank performance.Originality/valueThis study contributes to the literature by demonstrating that non-traditional banking activities influence the IC and bank performance relationship, which is scanty in the existing literature.