The Impact of Intellectual Capital Components of Investment Managers on Stock Return of Listed Banks on the Colombo Stock Exchange

Abstract

At its inception, social capital which was strengthening through tight human relationships in business organizations afterward matured in to intellectual capital (IC). In the rise of knowledge economy, the significance of IC has been gradually increased with its prominent features of deriving sustainable competitive advantages in long run with its knowledge component. Focusing on Sri Lankan banking industry, it is a knowledge based industry developed with number of advancements in order to provide a better service to the clientele. More specifically, the purpose of this study is to explore the impact of IC components of investment managers on stock market return of listed banks on the CSE during the period of 2009 to 2014. Importantly, the conceptual framework is an original construction by the researcher which identifies two IC components of investment managers as internal knowledge creators and external knowledge creators. Specifically, scorecard method was applied for the study, where independent and dependent variables are measured through proxy variables under quantitative methodology. Consequently, positive relationships derived with Treynor ratio and stock market return based on the argument that companies earn excess return due to the intellectual capabilities of investment managers under risk which means that internal knowledge creators have a considerable impact on stock return. Furthermore, external knowledge creators have positive relationship with stock return as well as return growth. Eventually the study reveals that qualitative approach also can be incorporated to measure IC, since the study is on behavioral finance and IC is a non-monetary item which is unquantifiable.