Intellectual Capital and Firm Performance Nexus: Evidence from Ethiopian Private Commercial Banks

Abstract

The link between intellectual capital and firm performance showed mixed results that attracted the attention of researchers worldwide. As one of the under-researched geographical locations, Ethiopia's private commercial banks deserve the attention from the intellectual capital-performance relationship perspective. This study aimed at investigating the connection between intellectual capital and performance of private commercial banks. The researchers compiled data from audited annual reports released on respective websites of nine private commercial banks in Ethiopia from 2011-2015. Accordingly, the intellectual capital of those banks was calculated using value-added intellectual capital coefficient (VAICTM). The multiple regression results indicated that components of VAIC predicted banks performance better than VAIC alone. Besides, capital employed efficiency was found to have the most positive significant relationship (5.28) with ROA. Thus, Ethiopian private commercial banks are advised to capitalise on the efficient utilisation of their physical and financial capitals to increase their financial performance.