Determinants of Intellectual Capital Performance: Empirical Evidence from Ethiopian Banks

Abstract

Intellectual capital can be described in terms of a tripartite connotation containing human capital, relational capital and structural capital components. Its concept is relatively new in worldwide business environment, mostly; within the field of accounting and finance (Al-Hamadeen & Suwaidan, 2014). For that reason, these concepts are applied in business activities of developed countries mostly (Iswati & Anshori, 2007). Studies have been carried out in diverse areas to identify factors that determine intellectual capital performance of banks. However, most of these studies were made in developed countries and gave mixed results though evidences on the case of developing economies, like Ethiopia’s, are limited. Hence, the purpose of this study was to empirically examine the determinants of intellectual capital performance of Ethiopia banks. Specifically, the study empirically investigated impact of bank age, bank size, investment in information and technology, bank risk, profitability, ratio of staff cost to total income, and bank concentration on intellectual capital performance. This study adopted correlational explanatory research design with arrangement of secondary data, short panel, quantitative approach and deductive method of inquiry. Econometric model estimation procedures and specification tests of panel data linear regression models were tried. Accordingly, fixed effect regression model was validated. Empirical evidences of fixed effect linear regression analysis revealed that bank profitability, ratio of staff cost, investment in information and technology and bank concentration have statistically significant positive effect on intellectual capital performance. On the other hand, bank risk and age have statistically significant negative effect on intellectual capital performance. However, bank size has statistically insignificant negative relationship with intellectual capital performance.

Keywords: Intellectual capital, Value added intellectual capital coefficient, Fixed effect, and Ethiopian banks