Intellectual Capital, Profitability, and Productivity: Evidence from Pakistani Financial Institutions

Hongxing Yao,Muhammad Aamir Shafique Khan,Muhammad Haris,Gulzara Tariq,Hafiz Mustansar Javaid

doi:10.3390/su11143842

Hongxing Yao, Muhammad Aamir Shafique Khan + Show 3 more

Open Access

https://doi.org/10.3390/su11143842

Copy DOI

Journal: Sustainability	Publication Date: Jul 14, 2019
Citations: 44	License type: CC BY 4.0

Affiliation: Jiangsu University, Shenzhen University

Abstract

The idiosyncratic and knowledge-intense nature of the financial institutions requires them to rely more on intangible than on tangible resources. Over the past two decades, researchers have been motivated to embark on the relationship between intellectual capital (IC) and performance of financial institutions. Considering the knowledge-based intellect as a critical skill of this era, the current study examines the impact of IC on the performance of 111 Pakistani financial institutions (PFIs) over the period 2007–2018. Two IC measures, i.e., value-added intellectual coefficient (VAIC) and modified value-added intellectual coefficient (MVAIC), were applied to examine the impact of IC on profitability and productivity. Robust results from the fixed effect regression and generalized method of momentum affirm the inverted U-shaped relationship between IC and performance, suggesting that the increase in IC performance of PFIs increases their profitability and productivity up to a certain level, and after that, a further increase in IC performance decreases profitability and productivity. The results further suggest that human capital is the most influencing intellectual resource which produces higher intellectual efficiencies and increases the performance significantly. The results of this study are likely to be helpful for management, regulators, policy makers, and academics and provide insights into the importance of IC and suggest that the investment in the IC improves the sustainable performance to a certain extent.

Highlights

Institutions operate with a combination of both tangible and intangible resources
This study attempted to examine the impact of intellectual capital (IC) on the sustainable performance of financial institutions in an emerging country, i.e., Pakistan, by regressing two IC measures, i.e., value-added intellectual coefficient (VAIC) and modified value-added intellectual coefficient (MVAIC)
Using the large data set of 111 Pakistani financial institutions, the fixed effect and generalized method of momentum (GMM) regressions were applied to offer a robust relationship between IC and sustainable performance

Summary

Introduction

Institutions operate with a combination of both tangible and intangible resources. due to the knowledge-intense and intellectually intense nature of financial institutions (FIs) [1,2,3], they rely more on intangible resources rather on physical ones. Since FIs are not involved in the production of any physical products, they do not require excessive physical assets to operate and grow. As it is service-oriented, the financial industry requires nonbalance-sheet items, e.g., information, knowledge, human resources, learning environment, relationship, system, information technology, and a supportive culture, which have significant relevance in producing and sustaining value [4]. As per the resource-based view, the intangible resources of an institution are more likely to contribute to attaining sustainable performance [5]. In this modern era, knowledge-based resources are replacing the traditional factors of production [6]. The term intellectual capital (IC) was first published in 1969 by John Kenneth Galbraith [8]; since the development and the existence of IC have been considered significant to the performance and sustainability of FIs [9]

Objectives

Methods

Results

Discussion

Conclusion