Abstract
The purpose of this study is to determine and compare the relationship between intellectual capital (IC) and banks’ performance in China and Pakistan. The data are acquired from listed banks in these two countries during 2010–2018. The Value Added Intellectual Coefficient (VAIC™) method is applied as a measure of IC. The results show that capital employed efficiency (CEE) makes the highest contribution to bank performance in both countries. In addition, the profitability of listed Chinese banks is driven by structural capital efficiency (SCE), while human capital efficiency (HCE) positively affects bank profitability and productivity in Pakistan. In addition, we find that the lagged effect of IC has a positive impact on future bank profitability. This study supports greater investment in IC in order to further improve bank performance in emerging Asian markets.
Highlights
With the emergence of the age of knowledge-based economy, intellectual capital (IC) has been considering as the driving force that organizations need to gain a sustainable competitive advantage [1,2,3,4,5]
The results showed that capital employed efficiency (CEE) and human capital efficiency (HCE) increase bank profitability, while HCE has a negative impact on return on average equity
In the context of Pakistan, we find a significant positive association between HCE and bank performance when measured by return on assets (ROA), return on equity (ROE), and Asset turnover ratio (ATO)
Summary
With the emergence of the age of knowledge-based economy, intellectual capital (IC) has been considering as the driving force that organizations need to gain a sustainable competitive advantage [1,2,3,4,5]. Banks’ performance directly reflects the overall situation of the banking industry, and relates to the sustainable development of the national economy [7]. Banks largely depend on their customers to create competitive advantages. Banks provide clients with services which are intangible in nature and require a developed mechanism of IC [14].
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