Nexus between Intellectual Capital and Bank Productivity in India

Abstract

This paper empirically investigates the influence of intellectual capital on changes in total factor productivity of 36 BSE-listed banks in India from 2005 to 2019. This study employs a two-stage analysis that begins by investigating changes in total factor productivity using the Malmquist Productivity Index estimated through Data Envelopment Analysis, and then computes intellectual capital and its sub-components within the Value Added Intellectual Coefficients model framework. Then, using the System Generalised Method of Moments, we investigate the impact of intellectual capital on changes in total factor productivity. According to our findings, productivity growth is primarily driven by efficiency changes rather than technological changes. Furthermore, regression results show that the intellectual capital index and its two sub-components, human capital and capital employed, have a strong positive impact on bank productivity. This research could help bank senior executives measure their productivity and intellectual capital, identify relevant intellectual capital elements that contribute to productivity and develop future policies to encourage and improve their intellectual potential. Furthermore, this is one of the few studies in the Indian context that examines the nexus between intellectual capital and productivity using the Malmquist Productivity Index.