Abstract
The current study is aimed at analyzing the impact of intellectual capital on the performance of Sharia-compliant banks in Saudi Arabia for the period 2013–2018. The intellectual capital efficiency has been measured by applying a widely-used proxy to intellectual capital, i.e., Value Added Intellectual Coefficient (VAIC). A multiple linear regression method, based on panel data using the pooled Ordinary Least Squares (OLS), was exerted. Regression equations were obtained to determine the impact of VAIC and its components (Human Capital Efficiency (HCE), Structural Capital Efficiency (SCE), and Capital Employed Efficiency (CEE)) on the financial performance of banks, designated as Return on Assets (ROA) and Return on Equity (ROE). The study has found out that VAIC has a statistically significant impact on the financial performance of Sharia-compliant banks in Saudi Arabia. But VAIC components fail to have a significant impact on ROE. However, these components significantly affect ROA. The study concludes that Sharia-compliant banks in the Kingdom of Saudi Arabia should pay particular attention to Intellectual Capital (IC) in general and Human Capital (HC), Structural Capital (SC), and Employed Capital (EC) in particular to increase Return on Assets and financial performance as a whole.
Highlights
The roots of the conventional banking system can be traced back centuries (Cerović et al, 2017)
2018; Moeller, 2009; Sriram, 2008). It is for Intellectual Capital (IC) components, namely, Human Capital (HC), important to note that measurements of intangible Structural Capital (SC), and Capital Employed assets in the literature are in the form of intellec- Efficiency (CEE)
A) Value Added Intellectual Coefficient (VAIC); b) human capital efficiency (HCE); H1.1: The financial performance measured by Return on Assets (ROA) c) structural capital efficiency (SCE); and of Sharia-compliant banks is influenced by d) can be stated employed efficiency (CEE)
Summary
The roots of the conventional banking system can be traced back centuries (Cerović et al, 2017). In contrast to the interest-based banking system (conventional), there is a non-interest based banking system called the Islamic banking system. The Kingdom of Saudi Arabia (KSA), which is one of the largest Muslim countries, does not exclude the presence of the Islamic banking. How Intellectual Capital (IC) influences the performance of these banks has not yet been investigated. The present work studies the impact of the Intellectual Capital (IC) on the financial performance of Sharia-compliant banks in Saudi Arabia. Though the influence of IC on the financial performance of conventional banks in Saudi Arabia and other parts of the world has been well examined by researchers (e.g., Al-Musali, & Ismail, 2014; Kamath, 2007; El‐Bannany, 2008; Kyrmizoglou & Mavridis, 2005; Karem & Ismail, 2012; Mavridis, 2004; Meles, Porzio, Sampagnaro, & Verdoliva, 2016), the Shariacompliant banks must be explored in the Saudi context
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