Intellectual Capital Efficiency and Its Impact on Financial Performances of Ethiopian Commercial Banks

Abstract

Mostly the knowledge, result of knowledge like patent, customer satisfaction, links with suppliers, commercial power, negotiating capacity, and competency of employees used as competitive advantage in service sectors like banks. This all called intellectual capital which can be decomposed as human capital and structural capital. The capital employed used as third because of the intellectual capital only alone do not create value without capital i.e. intellectual capital create value by put pressure on the capital employed. The purpose of this study is to analyses the effect of intellectual capital and capitals employed on the profitability and productivity of the firms using data for Ethiopian commercial banks for five years from 2009/10-2013/14. From the Ethiopian commercial banks 10 banks were included in the sample by purposive sampling technique i.e. those which have five year balanced annual data selected for the study. The value added intellectual capital coefficient which is developed and used by Pulic has been used to measure the intellectual capital efficiency of each firms and different financial ratio has also been used for performance measures like return on asset, return on equity and asset turn over. Based on the intellectual capital efficiency analysis the largest and governmental bank in the country which is Commercial Bank of Ethiopia have highest among sampled banks and Cooperative bank of Oromia have least. Based on the regressions done the value added intellectual capital coefficient have significant and positive effect in all measures of financial performances. But when value added intellectual capital coefficient treated by dividing into the components it have different effect on the financial performance measures. Human capital efficiency have no significant effect on the profitability measures return on equity and productivity measure asset turn over, but it have negative significant effect on the profitability measures return on asset. The structural capital on the other hand have strong and positive effect on the profitability measures of return on equity and return on asset, but it have no significant effect on productivity measure asset turn over. Moreover the capital employed efficiency have significant effect on both financial measures return on equity and return on asset, and productivity measures asset turn over.

Keywords: value added intellectual capital coefficient, Human capital efficiency, Structure capital Efficiency, Capital employed efficiency, firm’s financial performance