Intellectual Capital and Financial Performance: An Evaluation of Islamic Banks in Pakistan

Abstract

This study seeks to investigate the relationship between intellectual capital and bank‘s performance in Pakistan. A sample of five major Islamic Banks of Pakistan had taken for the period 2009-2014. Multiple regression analysis is used to show the relationship of intellectual capital and the bank‘s performance. The results suggest that the bank‘s performance (ROA and ROE) is positively and significantly related to the intellectual capital (Structural capital, Human capital and Capital employed efficiency) of Pakistani Islamic Banks. Human capital efficiency and capital employed efficiency show direct association with the bank‘s performance whereas structural capital efficiency shows no relationship with the bank‘s performance in Pakistan. Human capital efficiency is significantly and positively related to ROA, ROE, asset turnover and EPS. Physical capital employed efficiency of Islamic banks is significantly and inversely related to ROA and asset turnover; however it is positively and significantly related to ROE and EPS. Structural efficiency is significantly but inversely related to ROA and earnings per share and shows no association with ROE and EPS.